[Signal Request] Adjusting Dust Parameter (2021-1)

[monet-supply]

Hey all,

The dust parameter is the minimum possible debt of a vault. Currently all vault types have 500 DAI dust value.

The last time governance increased dust from 100 DAI to 500 DAI was in November. Since then, the price of ETH has more than doubled, which leads to an increase in the USD cost of transactions for any given gas price. Additionally, gas prices have increased sharply in the past few weeks and are frequently over 100 gwei. From such a high base utilization rate, gas prices could potentially spike to extremely high levels during a price crash (for reference, gas prices increased by a factor of more than 10x on Black Thursday).

This table shows what is the minimum debt (dust) size tolerated if gas price increases and we want auctions to clear without a loss for Maker.

For instance, when liquidating a 150% collateralized position in a distressed scenario where gas price increases to 500 Gwei, auction costs (kick, tend, dent, deal, trade) for keepers amount to about $420 of gas fees. This means the debt size (or dust) can not be below 840 DAI in case the keeper makes such a transaction with zero profit or loss and no loss is made for Maker. If you assume about 10% profit for the keeper, minimum tolerated debt size already increases to 930 DAI. Assuming an additional 10% price drop during the 1 hour OSM delay before a vault can be liquidated, this would further increase minimum tolerated debt size to ~1030 DAI.

Also note that unwinding of a vault costs approximately 400k gas which again, making it less economical for vault owners to deleverage if gas prices spike.

I believe governance should consider increasing dust above current 500 DAI level due to concerns mentioned above. There are also other negative effects that low dust levels may cause, particularly related to keepers’ reduced incentive to bite smaller vaults. The fixed gas costs compared to small dusty positions they bid on might outweigh their expectation of profits in a competitive bidding strategy that takes 6 hours.

Signal request poll:

What should be the new dust level? (please select all options you would support in an on chain vote)

• 500 DAI (no change)
• 1,000 DAI
• 1,500 DAI
• 2,000 DAI
• 2,500 DAI
• Abstain

Next steps:

This poll will close on Friday, January 15. I’ll submit this for an on chain poll if a majority of forum voters support changing the dust parameter.

[LongForWisdom]

I’d like for us to start using the parameter documentation when it comes to Signal Requests. This one covers the dust parameter:

Parameter - Debt Floor

If you are new to Maker Governance, this should help explain what dust is, why it’s important and what to keep in mind when voting.

[ElProgreso]

45% of Americans don’t have the ability to gain exposure to any type of asset class. I’m not even going to look up what it is for the World Population. I’m sticking with 500DAI in the name of the plebs who onboard into this ecosystem in the next 24 months. Unless y’all want them to check out Tron.

Just keeping it real

[jernejml]

@ElProgreso

I’m sticking with 500DAI in the name of the plebs who onboard into this ecosystem in the next 24 months.

I disagree, since it’s not on Maker to solve this on fundamental level, but on other Ethereum projects.
I would VERY like to hear from Foundation about L2/sharding. At least they should confirm that they have a strategy and resources working on it (how to use L2/sharding).

[ElProgreso]

So… then why ask the Maker Community to label itself as “Making the World a better Place”

What is the mission statement here?

[alexis]

Can we have some data regarding the actual users with this type of position. I bet we can accept this lost. 500 Dollars to open a position is already very high. No new joiner will come to maker.

[monet-supply]

Larger whales can stage “dust attacks” on Maker, where they open a lot of small vaults with low collateral ratios while gas prices are low (during a lull in activity, on weekends, etc). If/when prices fall (and gas price inevitably spikes), it won’t be profitable for keepers to bid on auctions. This was highlighted by B Protocol team in November: https://medium.com/b-protocol/the-keepers-dilemma-game-theoretic-analysis-of-liquidation-incentives-with-preliminary-b588e82e4d67

I don’t think that keeping dust limit artificially low is a sustainable way to help small users.

[alexis]

I agree with the attack tho this type of attacks are quite visible before it actually happens, right. If someone do it, by raising the dust at that time, they won’t be able to get they position back, unless they spend a big amount of gas too.

I believe it is something to monitor, but the attaquant won’t get any benefit and might lose a lot. Am I right?

On the other hand we lose a lot straight away by raising the dust. Again 500 dollars is not low and it is at the limit of being acceptable.

[ElProgreso]

Have you ask the B.Protocol Team @yaronvel how they feel about 1,000-2,000 DAI? I guess I like to visualize the importance of product-market fit. That’s all.

“Almost no one gets product-market fit. Almost no one. A lot of people like to throw around the term, and a lot of people like to redefine it as, “someone is using my product.” That’s not the term. The term for someone is using your product is, you have a “user.” That is not product-market fit.” –Michael Seibel

[Joshua_Pritikin]

I voted for 2000+ DAI. The only solution to high dust is scalability. We need Maker vaults on level 2 ZK rollups, etc

[williamr]

@monet-supply Great analysis here. From a risk point of view, I agree with the proposal to increase the debt size (dust). It does make sense to protect the protocol at this level of ETH prices.

I gave some further thought to this. There is another side to the story. One of Maker’s broader objectives, as a cornerstone of DeFi, is to disrupt traditional banking and give people that are normally excluded from such tools access to them. By raising the dust further, this could be perceived as a message that Maker is moving away from its retail investment base towards institutional investment focus. To give an example, in Latam, the Brazilian Real is normally one of the strongest currencies in the region. A dust at 1,000 DAI = + 5,000 BRL just to open a CDP position. For other countries in Latam, you can add many more 0s to that figure. Given the current economic situation, this would significantly reduce Maker penetration for vaults into those markets, removing most retail investors from the picture.

One consideration to balance Risk vs Market penetration is to think about how to manage the debt size (dust) once both the bull-run and volatility reduce.

Keen to hear your thoughts.

[ElProgreso]

@jernejml

I would VERY like to hear from Foundation about L2/sharding

BTW I agree with the L2 approach–but unfortunately this is not going to happen–this can only come into fruition if the Community steps up/builds it. It’s on us…

@Joshua_Pritikin

voted for 2000+ DAI. The only solution to high dust is scalability. We need Maker vaults on level 2 ZK rollups, etc

Not technical enough, but wouldn’t we lose composability with current Vaults w/this approach?

[g_dip]

I am reluctantly and sadly voting for 1,500 Dai. It sucks to price out small users, but an unsafe protocol can potentially hurt everyone. Thanks for bringing this up monet.

As a sidenote - is there a way that someone could build a sub-protocol on Maker (maybe b-protocol) where users live in one giant vault?

[Lozadaluis12]

I agree with @ElProgreso, but also agree with @g_dip , now, we all have seen that with DeFi growing every day and now with a bull run the gas just keeps going up, MakerDAO should start thinkin about L2 projects, at least only for ETH/DAI Vault at first. Vote for abstain on this one cuz a lot of newcomers and people who don’t have that much capital will be affected, but the protocol needs to keep safe.

[Joshua_Pritikin]

@ElProgreso

@Joshua_Pritikin

voted for 2000+ DAI. The only solution to high dust is scalability. We need Maker vaults on level 2 ZK rollups, etc

Not technical enough, but wouldn’t we lose composability with current Vaults w/this approach?

I haven’t really thought this through, but maybe vaults could live on L1 and L2 at the same time. So we would strictly gain composability.

[smaugho]

@ElProgreso

45% of Americans don’t have the ability to gain exposure to any type of asset class. I’m not even going to look up what it is for the World Population. I’m sticking with 500DAI in the name of the plebs who onboard into this ecosystem in the next 24 months. Unless y’all want them to check out Tron.

This was my initial reaction as well and strongly agree with @ElProgreso here. As somebody who was born and raised in Latin America, I ensure you we are giving a strong message with this to most of the world in fact (yes Latam, Africa, Asia): MAKER IS NOT FOR YOU.

I think they will not have more option than migrate to Aave or Compound. With the bull market that many see ahead and ETH going really mainstream, that means we could be loosing possible hundred of thousand of users (along all 2021).

I understand the risk mentioned by @monet-supply and we definitely should protect the protocol, but would like to give ourselves a little more of time to explore alternative solutions before taking this to an executive.

[hongbiao_li]

When the price of Ether exceeds 500, our dust gives 500 DAI. Now the price of Ether has doubled and our dust has doubled. I hope the dust will automatically float with the price of ETH in the future.

[ElProgreso]

Not sure I understand your logic here Hong. What happens when ETH goes to $10,000? Our dust gives 10,000 DAI? @hongbiao_li

Hey yo @bit Is this a protest vote? Quite the range you have chosen.

[Tosh9.0]

The misconception here is incorrectly equating the importance of Dai users in Latam and other developing regions with vault users in those same places (and around the world for that matter). The increased dust limit protects the protocol’s healthy function, which is paramount to any other potential concern we may have, including pricing out smaller vault users. Wouldn’t it be better to have Dai stable, the protocol generating fees and keepers making good returns in relative safety rather than maintain a dust limit which puts all of that at risk simply to ensure that low income users can open a vaults? I think those users prefer a stable currency/protocol and likely wouldn’t use vaults anyway (and therefore, not experience the dust issue) until much later in their crypto journey.

[ultraschuppi]

voted for the highest option. this is a safeguard for liquidations to work

@ElProgreso

So… then why ask the Maker Community to label itself as “Making the World a better Place”

Makers way to make the world a better place is not offering vaults to everybody, but to offer DAI as a stable coin for everybody. DAI is our product, vaults are just the money printers. We don’t need to be able to provide money printers to everyone (still it would be great, but that’s not the primary topic)