[Signal Request] Dai is at 1.04, going towards 1.05. Should we fix the peg with an emergency vote to lower stablecoin LR and increase stablecoin DC?

to be clear (as the vote language changed), I am for using a stop-gap (and a lifeboat) currently onboarded stablecoins and lower their LR and increasing the DC… This is a temporary patch. It is recommended for the community to fast track real world assets as they have the added benefit of being a natural liquidity provider.

Yes, I also mentioned that in the post. This can stabilize things temporarily while the community deals with the real existential question: Can maker scale?

100% yes it can.

Let’s zoom back. There are basically five fundamental phases and milestones to DAI

  1. DAI launches with one digital asset as collateral
  2. DAI adds another digital collateral
  3. DAI adds first off-chain collateral
  4. DAI adds another off-chain collateral
  5. DAI minted from off-chain collateral exceeds DAI from on-chain collateral

We are approaching #3. #4 and #5 will happen in 24 months.

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That’s quite the emergency actions. Going from 110% -> 101% CR.

Some things to note,

  • Currently, there’s not even any USDC-A room at all. Maybe things would be different with a much bigger USDC-A buffer.
  • We went from 515M+ DAI supply recently and now we’re at 450M.
  • SF’s were raised across the board a few days ago

Price chart:


I wouldn’t call this measure temporary, it seems like it’d be around for quite awhile and you won’t be able to revert it.


I’ve mentioned before that even setting a CR of 1.05 does more than capping the price at 1.05, people can still short DAI with high leverage.

image


I do agree that things have been moving slowly and we need emergency action.

We can still do big stablecoin DC increases across the board. And a 105% CR. That’s actually quite a big change. And we still have more gunpowder to cut the CR even lower.

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I vote for the plan.

I don’t like it. There are unknown unknowns. It’s less clean (from my perspective) than Quantitative Easing.

Even following this path, we should have a smarter approach like lowering LR gradually and increasing DC gradually as well.

But

The peg is in a bad shape for months. We lack the coordination to resolve this complex problem in a smart way. We are excited when the peg is above 1.03 but then we hope for a savior like yETH and do nothing (or at least in a slow pace).

Our customers are paying for our governance failure and lack of speed. We are using a lot of governance bandwidth on that and not making progress on RWA and other important stuff. That’s not how it should be.

I recommend people to read the burning platform memo from Nokia. There is a fire for 4 months now and we are discussing which fire extinguisher we want to use.

Let’s vote this thing and let our domain teams micromanage the execution if needed.

PS: For those not in the chat =>

You can always

  1. Not increase the DC more; then
  2. Slowly decrease the DC with time

RWAs are positioned and intended to take over stablecoins as collateral. The are a natural liquidity provider. The key is scale mixed with safety.

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In practice its just not a very compelling proposition to speculatively short the dai price right now. Personally I have lost money doing just that. You’re betting on either dai demand falling, or collateral onboarding picking up. Both of those things are very uncertain and we’d be counting on people participating out of altruism. I think dai users deserve and demand having a user experience supported by hard guarantees, rather than altruists volunteering to take on risk and potential losses.

There’s also a negative feedback loop where broken peg inhibits supply growth. The best example of this is the yETH fiasco where the broken peg prevented a potential fix from working safely. If we put these measures proposed here in place, I believe yETH could immediately be turned back on safely.

It might be our last chance to pause the ETH liquidations and fix the peg this way without much risk. ETH has fallen from the peak of $488 about 10 days ago and is trading around $365. I suggest that instead of the current ETH oracle we use the same oracle as for USDC and that is a constant ($500 is a round number).

I voted “Yes” because this is really an unexceptable situation and any solution is better than doing nothing (i.e. talk about RWA, change the rates a few percentages, raise the DCs…).

We are also burying our head in sand with relying on centralized stablecoin more and more.

Why worry about the (possible temporary) undercollaterization while DAI>$1? The ES won’t be called, and you can always sell as much DAI as you want to USDC and cash out that way.

How about a whale washing all of his stablecoins ($500M) for 1% fee in the first second after the activation and abandoning the vault. The peg would stay the same (+3%) as he does not need to sell DAI. Still voting Yes.

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Then we increase the DC for another $500M :slight_smile: At scale, we want that someone can buy 500M DAI at around $1 anyway.

Most will abandon their USDC vault, we will have to clean that up when RWA kicks in.

The alternative is to continue to debate all our wonderful ideas for months.

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One point of order regarding TUSD, we technically haven’t voted to approve the new implementation yet. If this passes, that approval would have to be part of the executive.

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Liquidations are still off for stable coins? With no plans to implement them soon?

Allowing 500 million at 101% LR could very well make Maker bag hold these coins for the foreseeable future as long as DAI >1.00. Risk premiums don’t really make sense that point, and we will likely be carrying these on the books until DAI <1.00 and the vault owners wish to arbitrage back.

It will likely fix the PEG, but then DAI becomes a wrapper for central stable coins, at least for now.

Be aware as you vote!

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Painfully, that is needed today. Real World Assets will displace all of the stablecoins. We need a window of time to get there. Once RWAs are coming in at scale, the DC for stablecoins can and should be reduced.

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I think there is nothing bad about DAI becoming the packaging of other central stablecoins, not to mention that this is only a temporary measure, and this situation can be changed by adding other assets in the future. We must solve the most important PEG problem now, and then solve some other problems. There must be a priority.

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yETH nearly restored the peg before it was paused and unwound. If another version launches soon we might not have to make this decision.

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This is going to happen regardless of liquidations imo. Not saying that we shouldn’t pursue something like this because of that. The demand for DAI is essentially limitless now given the number of AMM’s including it. This is especially true of curve. Anytime the amount of USDC or USDT increases in curve (or anything like curve), it pushes the DAI price up if there is not enough DAI minted to cover it. In order to mint USDC and USDT, all that needs to happen is dollars entering a bank (and possibly not even that when we’re talking about tether.)

In practice the best case outcome here is that DAI becomes largely a wrapper for stablecoins until such a time as the DAI can be supplied from real world assets. This could be years.

Unfortunately, this is still the best way to maintain the peg without breaking the ‘1 Dai is backed by $1 of collateral’ promise or implementing negative rates.

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We have been waiting for more than half a year, but the PEG problem is getting more and more serious. We should take the initiative instead of waiting for others to save us.

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Yeah that’s fine, if yETH re-launches successfully soon, the PEG will crash and the massive stable coin bag will unwind.

And on a positive note, the argument for a base rate increase will be easier

I think this poll should have more options. For example, an option to drop CR to 1.05, drop the base rate again (raising the base rate seems to have hurt us), with the emergency DC raises

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