Yesterday, on December 2nd, the MATIC team minted an additional 10M dai from their MATIC-A vault, and currently has 18.825M dai debt in total with a healthy collateral ratio above 700%. The mint pushed the MATIC vault utilization above 96% and the debt ceiling will likely be reached soon. Due to the governance over the holiday break, the last executive vote of 2021 will likely take place on December 10th, which means that if we want to increase the debt ceiling during 2021, an on-chain pool should take place next Monday, December 6th. The Maker community also recently decided to not offboard the MATIC vault. Therefore we looked at the MATIC vault situation and are proposing vault parameter changes listed at the end of the post. We focus mainly on increasing the debt ceiling, based on the arguments set out below.
The MATIC team currently represents more than 97% of dai borrowed from the vault type. With the assumption that they will maintain the healthy collateral ratio due to additional MATIC tokens on their disposal to top up collateral, we believe that the probability of them being liquidated is very small. At the current price of 2.18$, they are protected against a 74% price drop. With this assumption, current risky debt from MATIC-A amounts to 987K dai.
MATIC liquidity across the Ethereum markets is not great. Currently selling $20M worth of MATIC tokens would produce 32% price slippage. The metric worsened during last month.
On the other hand, MATIC token presence is strongest on their Polygon PoS chain, where the majority of liquidity is deposited; dominating markets are QuickSwap (~$286M total pair liquidity) and SushiSwap (~$80M total pair liquidity). Selling $22M worth of MATIC on Polygon PoS chain, would produce ~16% price slippage, liquidity is more than 100% better on Polygon compared to Ethereum. Polygon liquidity is still unusable for flash loan liquidations, but it would be used to arbitrage price discrepancy between Ethereum and Polygon market. Polygon liquidity is still better than no liquidity at all and is more reliable than liquidity on CEX venues, due to no KYC requirements.
MATIC-A vault type, has liquidation ratio at 175%, which is higher compared to UNI, YFI or LINK, which are set at 165%, which gives a higher buffer against market risk and price slippage before we start producing bad debt.
We propose increasing the MATIC-A debt ceiling to 35M dai (15M increase) and decreasing current gap to 10M (10M decrease).
If the community agrees with the proposed changes, this will go to the on-chain poll on Monday 6th and if approved on-chain into the last executive of 2021 on December 10th.