Parameter Changes Proposal - PPG-OMC-001 - 1 June 2021

Parameter Proposal Group: MakerDAO Open Market Committee

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


Source: Risk Premiums & Competitive Rates June 2021

Table Notes:

  • Risk premiums and Maximum debt ceilings are based on recent simulations available at https://simulation.blockanalitica.com/

  • Negative competitive rates are mostly due to liquidity mining rewards at Compound & Cream and due to rates and rewards accrued on deposited collateral

  • Lending products between secondary lenders and MakerDAO are not standardized and therefore rates can not be strictly compared.

  • DC-IAM ttl and gap changes are not included in this table, see proposed changes below

Lending Market Overview

DeFi lending rates are trending downwards for the second consecutive month and there is no reversal expected in the short term. Low rates are still maintained mostly by liquidity farming incentives. Additionally, potential rebalancing of investor portfolios into stablecoins and popularity of L2 lending have increased the supply of stablecoins on secondary lending platforms, pressuring rates lower.


Source: Calculations by Monetsupply

Similarly and as we have shown in the past month, rates on centralized venues have been also trending downward even before the recent price downturns. In the last week and after the two daily significant price drops, rates have only gone lower. At certain centralized venues perpetual funding rates even went negative, showing sentiment changed among traders.


Source: Binance ETHUSDT Perpetual Swap (7d rolling annual funding rate)

Another indicator of less bullish sentiment is increased supply of stablecoins as people rebalance their portfolios towards risk off allocation. Increase of PSM-USDC-A exposure is one indicator of this dynamic. Another is the increased supply of stablecoins after 19th of May.


Source: mkranalytics & coinmetrics

Proposed Changes

ETH-A:

  • Decrease SF from 5.5% to 3.5%
  • Increase gap from 80m to 100m
  • Decrease ttl from 12h to 8h

In order to lower USDC backing of DAI, maintain competitiveness and follow market rates lower, a decent cut to ETH-A rates is proposed. We are also increasing minting capacity which was too low on certain days in the past.

ETH-B:

  • Decrease SF from 10% to 9%
  • Increase line from 50m to 300m
  • Increase gap from 5m to 10m
  • Decrease ttl from 12h to 8h

Smaller rate cut is proposed for ETH-B since we believe this vault type is still one of the most appealing leverage ETH products in DeFi currently. At the same time we are increasing debt exposure capacity after witnessing good performance in the new liquidations system. Minting capacity is therefore also increased, but still a bit conservative due to OSM delay risks (potentially we can reduce ttl further).

ETH-C:

  • Decrease SF from 3% to 1%
  • Decrease ttlfrom 12h to 8h

Similarly as for ETH-A we are also proposing a bit more drastic cut for ETH-C vault type. We believe this vault type at 1% rate should be a nice boost to a much needed new DAI supply. Minting capacity is also increased, partially also to unify 8h DC-IAM parameters across all vault types.

WBTC-A

  • Decrease SF from 4.5% to 3.5%
  • Increase gap from 15m to 30m
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity.

YFI-A

  • Decrease SF from 5.5% to 4.0%
  • Increase line from 90m to 130m
  • Increase gap from 5m to 7m
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity. YFI-A vault owners demonstrated a very healthy unwinding process at price crashes which was incorporated into risk models, revealing lower risk premiums. Therefore a lower rate and higher line can be introduced despite the expected debt exposure growth.

LINK-A

  • Decrease SF from 5.0% to 4.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity.

UNI-A

  • Decrease SF from 3.0% to 2.0%
  • Increase gap from 3m to 5m
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity.

RENBTC-A

  • Decrease SF from 5.0% to 4.0%
  • Decrease ttlfrom 12h to 8h

General reduction in rates and improvement in minting DC-IAM minting capacity…

BAT-A

  • Decrease SF from 5.0% to 4.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting DC-IAM minting capacity.

AAVE-A

  • Decrease SF from 3.0% to 2.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity.

MANA-A

  • Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity.

ZRX-A

  • Decrease line from 10m to 3m
  • Decrease gap from 1m to 0.5m
  • Decrease ttl from 12h to 8h

ZRX on-chain liquidity is still low and risk models are proposing lower debt exposure. For that reason DC-IAM minting capacity is also adjusted downward.

LRC-A

  • Decrease line from 5m to 3m
  • Decrease gap from 1m to 0.5m
  • Decrease ttl from 12h to 8h

LRC on-chain liquidity is still low and risk models are proposing lower debt exposure. For that reason DC-IAM minting capacity is also adjusted downward.

BAL-A

  • Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity.

COMP-A

  • Decrease line from 30m to 20m
  • Decrease ttl from 12h to 8h

Risk models are proposing a bit lower debt exposure, again due to lower on-chain liquidity.

KNC-A

  • Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity to unify parameters.

UNIV2DAIETH-A

  • Decrease SF from 3.5% to 2.5%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2USDCETH-A

  • Decrease SF from 4.5% to 3.5%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2DAIUSDC-A

  • Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity to unify parameters.

UNIV2WBTCETH-A

  • Decrease SF from 4.5% to 3.5%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2UNIETH-A

  • Decrease SF from 5.0% to 4.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2ETHUSDT-A

  • Decrease SF from 5.0% to 4.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2LINKETH-A

  • Decrease SF from 4.0% to 3.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2WBTCDAI-A

  • Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity to unify parameters.

UNIV2DAIUSDT-A

  • Decrease SF from 3.0% to 2.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

UNIV2AAVEETH-A

  • Decrease SF from 4.0% to 3.0%
  • Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity. Lower rates should also help retain Maker’s UNI LP user base if Uniswap v3 triggers liquidity incentives.

Revenue Effect

Proposed rate changes would lower annual rate income from 123m to 81m, ceteris paribus. There is some upside expected from higher demand because of lower fees and higher DC on ETH-B, which could be negated by potential refinancing of ETH-A vaults to ETH-C.

Other Recommendations

  • As risk is becoming undercompensated at lower fees for particular vault types, @Risk-Core-Unit recommends to maintain Surplus Buffer at minimum 3% of risk assets (currently this would be above 70m). This means less MKR is burning is preferred in the next months, which is to some extent already implied by the current setting of Surplus Buffer lerp module.
  • Increasing ETH-B exposure carries higher auction risks, therefore shorter auction duration and more aggressive auction curve is recommended.
  • It is also recommended to increase ilk.hole auction throughput parameter for ETH vault types, most specifically for ETH-B and ETH-C where growing debt exposure is expected. Post about proposed auction parameter changes is following soon.

Final Note

Proposed SFs will get included into next week’s on-chain poll on June 7, 2021, and if passed will be included in an executive vote on June 11, 2021.

17 Likes

I can’t see the PSM DC increase on it.


image

Compound. : -.20%
Aave : 1%

I am not sure where we are going but we need to increase the PSM.

PSM DC to 3 B is happening tomorrow anyway. Let’s hope we get some more DAI from lowered SF non-stablecoin ilks instead

Really happy to see

  • super low SF on ETH-C
  • a lot of more headroom on ETH-B

So we finally cover both super leveraged and super conservative ETH-holders.

1 Like

Given that BAT-A and AAVE-A already had pretty decisive forward projections of loss for the year, is this recommended lowering of fees based on a model that would narrow that loss? What is the estimated increase in adoption at these particular rates, ceteris paribus? Or are these numbers simply to keep the rates in those ilks competitive with alternatives?

Thanks!

1 Like

For smaller collateral types there was a general tendency to reduce rates across the board because of the reasons mentioned in the post. Apart from vault types where the situation with liquidity or collateralization ratio distribution got worse and risk compensation would be hardly achieved if rates went lower (example such as ZRX and LRC).

I think you are referring to the net loss of these two collaterals based on oracle costs? I think this needs a separate topic that deals with potential off-boarding of collaterals that have low usage versus oracle costs. Because we can’t predict whether a 1% rate cut will bring enough additional demand to finally offset these costs. Proposal is based on risk and competitive grounds, fixed costs would be another input.

5 Likes

Proposal is now up in the voting portal as a poll, please participate so it can go into the executive vote on 2021-06-10T22:00:00Z.

2 Likes

Update: since the onchain poll passed with a 100% approval, the currently running exec is containing these changes.

Please help on bringing this to effect by placing your MKR onto it. Thanks!

2 Likes

Update: the exec containing the proposed changes just got scheduled, so we are going to see the new rates in effect at 2021-06-21T14:00:00Z due to the office hour modifier

2 Likes