Another thought came to me on this 101LR on USDC-A.
Say the DAI PEG is 1.02 - This means leverage is infinite and I earn USDC by levering. Literally one could make USDC by levering this up to total DC. I think we have to have the USDC-A LR at least at a level we don’t expect to see the DAI PEG at. 105 at least because if the price goes above this then the USDC DC attack is effectively on. Now can someone manage this attack to walk with their capital and leave the system in a lurch. Depends on the DAI price they can get.and how much they have to lever before they can walk with all the USDC they started with.
This is something we need to take into account here on the LR especially for USDC btw. So a big no to the idea of 101LR and $1B cap… I think 105 is probably the lowest we want to try to go if we even go down this road and know a USDC attack is possible if the DAI USDC price rises above 1.05. What I don’t know is if the DAI USDC price is used to calculate whether a USDC loan on Maker is underwater or if this is still pegged to 1. I understand the idea of not doing liquidations (I really want to urge people to turn liquidations on on USDC) but peggin the DAI/USDC price to 1 just opens up the above USDC DC LR attack.
BTW: The above only came to me because as I use the USDC-A facility to take the DAI USD short. I realized a while ago the higher above 1% I get on the DAI USDC sale the closer I come to edging out the 20% on the 120%LR - this allows me to extend my LR effectively because the DAI USDC price is helping get me more USDC to feed into Maker extending my leverage with the USDC profits. I then was like shit if we lower the LR to 101 I literally make USDC if I sell DAI for USDC over the LR price (101 being 1.01 in DAI).
I think this bodes well for a LR that should never be below 110% because as the PEG approaches 1.1 leverage effectively is growing already. I think 1.1 DAI PEG in most normal circumstances should never sustain for any length of time…
EDIT ADD: Also where is the room for the Liquidation Fee of 13%? I mean literally to have a hope of getting that 13% are we not required to have LRs > 113%? Literally the protocol has to have room for profit on ALL of the assets that might liquidate otherwise the protocol loses money and MKR flop auctions occur. I know USDC doesn’t have liquidations turned on. But when we turn them on we are going to want a LR of 113% AT a MINIMUM at least if we think the 13% LF is important risk parameter to govern behavior?