MIP36: Peg Stability - Compound Governance Dai Leverage

MIP36: Peg Stability - Compound Governance Dai Leverage

Preamble

MIP#: 36
Title: Peg Stability - Compound Governance Dai Leverage
Author(s): Alexis
Contributors: None
Type: Technical
Status: Request for Comments (RFC)
Date Proposed: 2021-01-09
Date Ratified: <yyyy-mm-dd>
Dependencies: Join Dai-farming, Join Dai-lendler 
Replaces: n/a
License: AGPL3+

References

  • The proposed implementation is part of the dss-psm-cme - Peg Stability Compound Mixed Exposure - project.

Sentence Summary

This proposal defines a Peg stabilizer actionable only by governance,
which uses flash minting technique with MIP35c2: Dai farming vault or MIP32c2: Dai lending vault
to leverage our position on cDai.

Paragraph Summary

By governance vote, or by executing order, we can call one of the methods define in this MIP. These methods will leverage/deleverage our position on one of the Compound Dai Vault.

For that we use flash minting technique on Dai MIP25, then we convert Dai to cDai using either the farming or the lending Vault which will increase our position, then we return the Dai.
Both vaults are already defined previously (MIP32, MIP35).

Here is the last part of the - Peg Stability Compound Mixed Exposure - project.

Component Summary

MIP36c1: The Peg Stabilizer Compound Dai Leverage

MIP36c2: The Joins

MIP36c3: Proposed Code

MIP36c4: Test cases Lists existing test cases

MIP36c5: Security considerations Comments on the security implications

MIP36c6: Licensing States the license under which the proposal and code are distributed.

Motivation

Currently, the usdc token inside the PSM is inefficient and needs to be diversified.
All previous MIPs ( MIP29, MIP32, MIP35)
are mint to control the peg under or over a certain level, for example the current PSM levels the dai at 1.001 or 0.999 on the other side.
But none of them can actually move the price, this stabilizer allows the governance to push down or up the price.
I believe this tool is needed for example in case the price stays stuck on one side and in any case it gives more power to the governance.
The governance can move the market price by sending supply to the market via cDai or by removing supply.

Specification

MIP36c1: The Peg Stabilizer Compound Dai Leverage

The contract has 2 methods only accessible by governance :

  • leverage(uint256 amount)
  • deleverage(uint256 amount)

leverage() flash mint the amount of dai pass as parameter. Increase its position on cDai using one Compound join and return the Dai flash minted.

deleverage() flash mint the amount of dai pass as parameter. Use the Dai to pay back its debt using one Compound join, decrease its position and return the Dai flash minted.

Two contracts will be deployed one for the Lending Join one for the Farming Join.

MIP36c2: The Joins

We reuse both join defined with MIP32 and MIP35.

MIP36c3: Proposed code

The code : dds-psm-cme

MIP36c4: Test cases

Unit tests:

MIP36c5: Security considerations

Compound technical risk

Errors or security vulnerabilities in the Compound system could result in the underlying USDC deposits to be lost or stolen.

Implementation technical risk

In addition to the technical risk inherent to Compound, the adapter implementation itself is non-trivial and could increase the attack/error surface.

Due to the design of multi-collateral DAI, worst-case losses should be limited to the collateral deposited in the adapter, and the debt ceiling should be set with this in mind.

There is security consideration about the code itself, compound tokens.
In this implementation as we use leverage on compound, the c-token can be sized.
By using leverage on compound we also expose ourself to a lost of the assert which is currently compensated by COMP token.

Another risk: uniswap interaction, but limited to the extra bonus.

MIP36c6: Licensing

4 Likes

Updated the contract method to be called on each join.

@alexis Is the case the same with this MIP as MIP44?Can we mark this proposal withdrawn and archive it?

@Davidutro yes please can archive this one.

2 Likes