As a preface, I want to say that my understanding of DAI is that it gains its value through the value of the collateral offered to mint it. That said:
I’ve given this a bit more thought over the past couple of days and at this point I’m at least fairly certain that at least conceptually BAT SF should not equal ETH SF because its rate of return (RoR) is not equal to the ETH RoR.
I haven’t seen much in this thread to explain to me why the BAT SF == ETH SF. IMO, we only find ourselves in this place today because setting the BAT SF == ETH SF was the simplest course of action when launching MCD.
Having thought a bit more about the SF the past few days I would like to put out a strawman argument that the SF should be more or less be defined by the green line in the following graph for each asset.
That is, that the SF should equal the difference between the expected RoR for a particular asset and the desired RoR at the given risk level times the desired collateralization ratio. Whether or not beta is an adequate way to quantify risk is probably up to debate, but i think conceptually the idea is there i.e risk v return.
As i see it, when demand dynamics are ignored, the SF is simply a mechanism to protect DAI against the inflation caused by the DSR which ensures that each and every DAI token remains backed by the appropriate amount of collateral. To drive this point home I’ll provide a quick example. Let’s imagine a world where the SF of all assets is 0%. All dai is backed by 2 assets types A and B. The DAI DSR is 8.75%. Asset A has a return rate of 7.75% and asset B has a return rate 9.75%. On Jan 1 I mint 100 DAI by offering up $100 of asset A and $100 of asset B. My collateralization ratio at this point is 2. I immediately lock the 100 in the DSR to begin drawing interest. At the end of the year my DAI has grown and I now should have 108.75 DAI (54.38 DAI / vault). The value of my collateral also grew over this time the $100 worth of asset A is now worth $107.75 and the $100 in asset B is now worth $109.75, but now my collateralization ratio is not 2. The 54.38 DAI that is backed by the collateral in vault A now only has a collateralization ratio of ~1.98. For vault B that number is ~2.02. However, if we change this example and charge asset A a SF of 2% we should find that at the end of the year that the DAI minted by that vault should still be backed by 2x the collateral.
I’ll leave refuting my strawman as homework for the reader, but here is where I will segue into my point. Whether or not the past 3 years of price appreciation is going to be representative of the future is unknown. ETH may prove to be the better asset to hold but that too is unknown. What i do know is that ETH RoR over the past 2.7 years is not equal to BAT RoR over the past 2.7 years, and I’d be willing to bet that BAT RoR will not equal to ETH RoR over the next 2.7 years, so it seems a bit off to me that we would keep the SF for these two assets in sync.
BAT over the past 2.7 years has been both a higher return and a lower volatility asset, so MAYBE I’m justified in saying that the SF should be lower. That said, I think it is ultimately up to the MKR holders to decide if I am right or not, so what i am trying to figure out at this point is what is stopping us from letting the MKR holders vote on the SFs separately. Is there a tech limitation or are we just looking for some signal to justify polling separately?