PSM-PAX debt ceiling was recently increased to 500M, but currently does not have Debt Ceiling Instant Access Module (DC-IAM) activated. In order to maintain a healthy DC-IAM gap which also includes PSM-PAX, we propose the following;
- Activate DC-IAM for PSM-PAX with following parameters
- Set line to 500M
- Set gap to 50M
- Set ttl to 24h
- Reduce the PSM-USDC DC-IAM gap to 950M
- Slower and more controlled increase of PSM-PAX debt ceiling
- Maintaining the aggregated DC buffer across PSMs
- Potentially slowing down the diversification process of stablecoin exposure
Peg Stabilization Module (PSM) is an important mechanism for maintaining the dai peg. Due to general excess demand, dai tends to trade with a premium which is arbitraged away via PSM-USDC and therefore the USDC exposure is increasing rapidly. In order to diversify the exposure to USDC, the community decided to add additional stablecoin PSMs, of which PAX is the first one. In order to incentivize the diversification process of stablecoins used in PSMs, the tin parameter of PSM-USDC was increased from 0.1% to 0.2% and PAX-PSM was introduced with a tin of 0.1%.
Another important aspect of PSM is to prevent dai premium diverging further from the peg during dai liquidity crunch events commonly associated with larger market drowndows (such as during Black Thursday), when vault owners need to acquire dai on open market and other market participants are also purchasing dai in order to hedge their positions. In such instances, PSM plays a critical role as other means of increasing dai supply are limited and therefore it is important that we maintain a healthy DC buffer across PSMs.
While diversification of stablecoin exposure is important, their liquidity aspects should not be neglected either. The supply and the growth rate of USDC is magnitudes higher than PAX, especially considering that almost half of its supply is in the hands of Paxos treasury. The on-chain liquidity of PAX is poor, especially the PAX-DAI liquidity, which is the most important for the dai premium arbitrage. Therefore the slower growth of PSM-PAX debt ceiling is preferred over the fast uncontrolled increase and this is the main reason why this proposal equates DC-IAM line with current available debt ceiling.
Lastly, we preferably do not want to be exposed to a substantial share of the total supply of any collateral asset, especially not to centralized assets. With the currently available 500M PSM-PAX debt ceiling and additional 67.3M PAX which we already hold from PAX-A vault, we would be exposed to 58% of total PAX supply or 109% of supply that excludes emission held in Paxos treasury.
- Other (write in the comments)
Poll will run until September 12th and depending on the outcome will move to an on-chain poll assuming the outcome is yes or will be reintroduced with changed parameters if the outcome is other.