Parameter Proposal Group: MakerDAO Open Market Committee
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-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.
- 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.
- 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.
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.
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 .