[Signal Request] Adjust ETH-A Debt Ceiling (2021-02)

I think we should increase the total ETH DC by allowing for new vault types, with higher LR. New vault types can be as simple as higher LR, lower SF, or even use something like Global Collateral Ratio (new vaults can only be open at current GCR or higher in that vault type). So lets assume we have ETH-C with 200 CR, and lower SF than current ETH-A - some large and highly collateralized vaults will probably migrate to ETH-C, effectively lowering DC utilization in ETH-A, allowing for new space.

This would also partially solve the free riding problem, as users with higher CR are much less risky for the system, while they are charged the same SF.

2 Likes

I think we should have a higher ETH-A debt ceiling with a higher stability fee and commensurate stability buffer. I also believe that @yaronvel should design an ETH-C vault with B. Protocol to safeguard it from liquidations. This would be a win for the customers, Maker, and B. Protocol.

2 Likes

Just want to give the voice of the ecosystem that integrates with Maker.
Having ETH-A depleted, will affect integrated projects.
I our case it will not put user funds at risk, but will make the system less usable.
I think @niemerg from yield protocol will have similar issue.
All the yETH vaults.
Etc.

I get that this is only one of the considerations to have, but wanted to make sure is aware of it.

8 Likes

That is correct. Yield Protocol makes the assumption that it is always able to borrow via ETH-A. If this condition is not true, our user experience is significantly degraded because users may be unable to withdraw Dai they are owed.

7 Likes

Yes it seems like a no-brainer that the ability to create dai from ether should be available to anyone on the globe every day of the year 24/7. The parameters to make this a reality will be adjusted as needed but having ether not be available, having an “out for lunch” sign is not acceptable. For the spice must flow.

1 Like

To mitigate the additional risk of the higher debt ceilings, I think we should focus our attention on growing the surplus buffer aggressively rather than raising stability fee rates or collateralization ratios. Let’s seize the opportunity and step on the growth pedal!

4 Likes

Are you suggesting increasing the SF again above the rates proposed on Jan 6th? I agree with increasing the SB and the box parameter but am assuming you would want to see how the market reacts once new SFs are implemented.

Regarding the SB, do you feel the $10M currently leading the poll is high enough or should we increase this to $12M+? We’ve grown DAI by over $300M since the poll went live so I think it would be important to consider larger increases (as a side note, I feel like the signal request polls should be closed more quickly given the rapid growth we’re experiencing, or if sufficient consensus is reached).

Regarding the box parameter, are we able to get a sense from the Keepers of the level of capital they hold?

1 Like

love this idea … rewarding low-risk users with a lower SF seems like something that should exist anyway

2 Likes

It is my understanding that the main issue is liquidation. With the current box it would takes weeks to liquidate vaults which is likely to hurt us a lot (if I understand correctly that we can liquidate 15M DAI every 6 hours).

This is a broken system and should be fixed. We should either help Keepers to be up to the task of liquidating 100M DAI per hour or find another solution. Maybe Liq 2.0 is the solution already.

SB, SF and LR are not solutions to this problem. Sure a higher SB might let us live. But we will still take the loss because our liquidation system is not good enough.

We need to have a liquidation which we are confident that it can liquidate 5% of available ETH in 2 days. Then we should allow having 5% of all ETH as locked collaterals. If ETH is the pristine collateral of DeFi and Maker the biggest lending protocol, 5% is the minimum we can expect.

The speed of liquidation is a technical problem that is fixable. The ability of the market to absorb all those sell orders is a more complicated matter (just like portfolio insurance in 87’s Black Monday).

3 Likes

This is only half the problem and is fixed by Liq 2.0, IMO. The other half of the problem is using the OSM on a 1-hour delay for Dai generation. A suggestion I would make to the Oracles team (for the medium term, those guys are absolutely swamped) is to have Dai generation be governed by the lower of the delayed OSM and a live OSM, and have liquidations only be governed by the delayed OSM. This will require core smart contracts changes, so it’s not an easy lift.

3 Likes

Please note there is a new more formal signal request regarding IAM here: [Signal Request] Rolling out the Debt Ceiling Instant Access Module (DC-IAM)

Please participate over there as well!

This will move on-chain on Monday as it was wrapped up in @Risk’s more general debt ceiling poll here: [Signal Request] Debt Ceiling Adjustments, 11th Jan 2021

Thanks to all who voted.

Our proposal to experiment a Vault backed by committed keepers is in RFC phase, and you are welcome to comment about it.

Liq 2.0 abilities will be capped by DEX liquidity, which is far from 100M DAI an hour imo.
The solution we proposed are committed liquidators who will be incentives to build complex hedging systems, and thus could absorb some liquidity in extreme market conditions.

1 Like

the corresponding on-chain-poll about ETH-A DC increase running right now - please vote.

also - since we are about to hit the DC of ETH-A again pretty soon - there is an urgency executive for raising the DC to 1000 MM on-chain already. please help.

1 Like

So I’m a bit confused by the various hesitations around raising the ETH-A debt ceiling so that we do not need urgency executives every two weeks. The last time I asked about this, it seemed to me that the ultimate goal of Maker is to maintain the DAI peg, I supposed in such a way that users trust this asset, in turn increasing the demand for it and the cashflow generated.

I see some people in this thread pointing to the risk of liquidation as a an argument against raising the DC. Why is that? In what way do liquidations impact the peg? In what way do liquidations impact the security of the overall system? It seems to me that this risk is segregated on a per vault basis and only concerns the vault owners, not the Maker system as a whole.

In that context, and as I was saying in the thread linked above, I am under the impression that the DC should always be increased when the cap is about to be reached, and that there should in fact always be a comfortable margin, except if the value of DAI below $1, at which point there is a need to make people unwind their vaults by increasing the SF, thus allowing for a reduction of the DC. Indeed, why would we artificially limit the amount of debt generated by not moving the ceiling appropriately and raising the fees, as long as the peg is maintained?

1 Like

In general, the DC should be raised incrementally to limit the possibility of some smart contract issue… E.g. a DC of 100Bn just isnt needed when 1Bn will do… it is easy enough to incrementally increase it… no need for the extra exposure…

1 Like

That makes a lot of sense – by “comfortable margin” I did not mean 10x more than the current DC :slight_smile:

thanks everybody for participating, the urgency exec covering the result of this poll just got scheduled. we are going to have one billion dai from ETH-A-DC in two days :rocket:

4 Likes

Because if the ETH price drops significantly enough, and quickly enough, the Maker Protocol takes a loss in addition to the vault owners. 150% LR means that if ETH drops by >33% that the Maker Protocol needs to make up the difference. Naturally some vaults will save themselves (and Maker at the same time), but this is not a guarantee.

There is also doubt over whether Keepers can actually handle large volumes of liquidations at once. The box parameter mitigates this risk, but it increases the time that the Maker Protocol needs to hold onto liquidated collateral before it can be sold, which increases market risk for the protocol.

3 Likes

This topic was automatically closed 7 days after the last reply. New replies are no longer allowed.