So one caveat to this is that holders of ETH-A vaults (and any other non-stablecoin vault) also really want the price of DAI to be as stable as possible. The reason for this is that if they have to de-lever in a crash scenario, they don’t want to have to pay $1.05 for DAI (because everyone wants DAI in a crash scenario this pushes the price up.)
So in this way having the PSM facility actually makes other vaults safer to hold as well. I do agree with you that in an ideal world we would keep the total amount of USDC below ‘existential risk’ level. I think most people agree with that part.
The question is more how do we get there from here. The key solution is to onboard more non-stablecoin collateral, but how to go about this?
1) Reducing ETH (and other) vault fees is an option, but what happens if (like last time) we do that and it has no significant effect on the total amount of stables? We’ve both cut revenue (and system safety, given less buffer less quickly) and in all likelihood not fixed the problem (brought USDC below ‘existential risk’ level.)
2a) The other option (that is currently being pursued) is to onboard new assets for use as collateral. The difficulty here is that ETH and BTC are by far the largest crypto-assets, so there is limited opportunity in the purely crypto space. Liquidity pool tokens are an opportunity here, but it remains to be seen how popular these are.
2b) The other part of this option is to pursue off-chain assets as collateral. This has its own complexities and problems, but can potentially scale much more quickly once it’s up and running.
One of the key arguments against point #1 is that reduced revenue will also reduces our ability to pursue #2a and #2b. Currently this is more theoretical than observed, but in principle more resources gives a greater capacity for action in these directions.
In theory if we pursue #2a and #2b the long-term situation should be much improved. The danger is higher in the short and medium terms (before we can get real world assets and additional valuable cryptoassets onboarded.)