Mid-month Parameter Changes Proposal - PPG-OMC-001 - 2021-11-10

Parameter Proposal Group: MakerDAO Open Market Committee

Authors: @Primoz, @LongForWisdom, @Monet-supply, @SebVentures, @Akiva, @hexonaut, @ultraschuppi

Overview

DAI minting from volatile assets has been accelerating in the last weeks. We are probably going to hit the Maximum Debt Ceiling of WBTC-A of 1.5 B DAI (increased in the last Mid-Month Proposal) in a few days. This debt-exposure is reaching an unhealthy state so we propose a few changes to slow down a bit.

Risk Overview

@Risk-Core-Unit suggests the increase of risk compensation for WBTC vaults for a few important reasons:

  • Despite WBTC-DAI on-chain liquidity not being as bad, it is still about 3x worse than ETH-DAI liquidity. What concerns us is the fact that about 50% of existing WBTC is used for leverage across three largest DeFi lending platforms. In a price shock scenario, additional WBTC liquidity might potentially need to be sourced by market makers, which would need to rely on a longer than expected redemption cycle. This potentially means WBTC peg could temporarily break, which creates additional issues for Maker which still uses BTC/USD price oracles instead of WBTC/USD price pair.

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Source: MakerDAO Risk Dashboard | Block Analitica

  • Loan concentration at WBTC-A vault type is one of the highest as three largest borrowers represent two thirds of the exposure. Further, collateralization ratios of WBTC-A vaults are among lowest compared to other Maker vault types, creating additional liquidation risks.

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Source: MakerDAO Risk Dashboard | Block Analitica

  • Maker also became the largest holder of WBTC, surpassing Aave and Compound. As much as this sounds promising, it means Maker carries the largest liquidity risk. Especially since Maker would be the last in line to liquidate WBTC in a price shock scenario (because of the 1h OSM delay) and other platforms could potentially already drain a large part of available WBTC on-chain liquidity.

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Source: MakerDAO Risk Dashboard | Block Analitica

We also believe that a good way to partially mitigate this would be to introduce a higher LR WBTC-C vault, instead of limiting DC on WBTC-A and forcing users to use riskier WBTC-B type.

Proposed Changes

WBTC-A: Increase SF from 2.5 to 4.0%

WBTC-B: Increase SF from 5.0% to 7.0%

Final Note

The proposed changes, if confirmed, should increase yearly revenue ceteris paribus by about 18 MM or from 132 MM to 150 MM DAI.

Proposed changes will get included into next week’s on-chain poll on 2021-11-14T23:00:00Z, and if passed, will be included in an executive vote on 2021-11-18T23:00:00Z .

21 Likes

Shouldn’t we have to increase the SF for every collateral type in general, even ETH A has a similar capital at risk in ratio to debt compared with WBTC A according to (MakerDAO Risk Dashboard | Block Analitica) the collateralization is just slightly better. ETH-B looks way worse. Whole market increased leverage we should take countermeasures.

It depends :wink:

This proposal is meant as a direct reaction to what’s happening with WBTC-A vaults right now and we think it is necessary to do something about it. The situation is different to other vault-types.

We will for sure revisit the overall situation in our next regular meeting - one of the key factors about changing the rates is also what the competition is doing. We didn’t had a deeper look into this area for this mid-month proposal.

3 Likes

This proposal will be onchain for a poll on Monday (2021-11-15) and voting will last for three days.

3 Likes

The Executive containing the proposed changes has been scheduled and will be executed on 2021-11-22T14:02:00Z

3 Likes

Supported this. It will be interesting to see how the trajectory changes. One way to mitigate issues here is to stop increasing the DC and force wBTC to find its way into other wBTC vaults.

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here we go :slight_smile:

5 Likes

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