There is currently a discussion going on in MIP35 that would see maker lend assets purchased via the PSM to compound in order to gain some interest.
I would posit that a better decision for maker to would be to try and get the USDC off of its books outright.
so the TLDR of everything below is: auction off USDC to buyback MKR instead
There are basically 3 motivations behind this in my mind:
- In order for the PSM to do its job there needs to be sufficient room between the current liabilities and the line of the PSM.
- As a result of this it seems maker is going to need to raise the line to infinity in order to ensure that there is sufficient headroom in the PSM.
- Holding tons of USDC is not capital efficient bc of inflation associated with the USD.
- solving this through lending via compound (or any other protocol) introduces even more counter-party risks that maker then needs to contend with.
- There are counter party risks associated with USDC. (Not to mention the counter-party in question is your largest competitor)
However in order to be able to get the USDC that was purchased via the PSM off the books maker first needs to pay down it’s liabilities associated with the PSM. See this post explaining dai liabilities.
Luckily the protocol has a large store of equity that it can use in order to do this.
The surplus buffer.
So what i would suggest, is that instead of storing ALL of this equity as DAI in the surplus buffer we can convert a portion of it into equity stored via USDC in the PSM.
So how do we do this? Well first we need to decide the rate at which we want to pay down the liabilities of the PSM. This could be implemented in a number of ways, but i would suggest that we pay it down like interest (maybe call the rate
tint). That is, the PSM would have some annualized percentage rate associated with it and that rate would be “payed” to reduce the protocol’s DAI liabilities. As far as the technical implementation of how to pay i believe all that needs to be done is to increment the systems
sin. This would mean that over time the system would accrue
sin via the PSM and once that
sin reached 50K dai it would be paid off via the system buffer just as it is today.
Over time this would mean that the protocol would gather equity in the PSM, so once you have 10,000 USDC worth of equity stored there you should be able to kick a flap auction the same as you do today with DAI only this time you’re auctioning off USDC instead.
The nice thing about this does not change the overall amount of MKR you’re buying back. This is because you don’t destroy any equity with this scheme you just change it’s storage medium. Downside is that it does have implications on how quickly you can store DAI in the stability buffer which is still important as DAI is the systems unit of account.
I wanted to throw this idea out there before MIP35 got too far along as a potential alternative, so this post is a bit rushed. That said, What do people think?