Signal Request: Increase ETH-A Risk Premium (September, 2020)

Alright. Round two. 1.5 months ago I submitted a similar signal request to increase the ETH-A RP here. The result was to let the risk team decide a parameter that the community would then vote on. After much deliberation, @Primoz presented on his analysis of ETH risk.

With this in mind, it looks like it ultimately falls onto the Maker Community (with this knowledge in hand) to choose a risk premium for ourselves.

Therefore, I would once again like to request a signal whether to increase the ETH-A RP.

What should the Risk Premium of ETH-A be?

  • 0% (No Change)
  • .25%
  • .50%
  • 1%
  • 1.5%
  • 2%
  • More than 2%
  • Abstain

0 voters

Polling will end 2020-09-15T04:00:00Z after which the results will be added as a pull request to be included in the following Monday’s governance schedule.

6 Likes

This is a really good presentation! I liked the number focused perspective. After watching it my following thoughs

We should apply a risk premium of 2% or above (as close to 4% without decreasing outstanding dai)

We should offer two additional products

  • An ETH-B with a lower CR of 150% with a higher risk premium %
  • An ETH-C with a higher CR of 150% with lower risk premium %
3 Likes

I don’t think there’s any interest in an ETH vault with a higher collateral requirement. 150% is already the highest in the industry.

Depends on the trade off between capital efficiency and capital cost, honestly I don´t know

I am in favor of a small incremental increase in the RP. However I caution against moving too much too soon until such time as we can implement either aggressive LRs for stablecoins or real world assets.

Logically this has a market foxe to push the peg higher. The intensity of that force is somewhat determined by the cost of capital here. Maybe yield farming won’t notice… today… but at some point it will have an impact.

We need the overflow valve.

Please keep in mind that the RP is meant to not be changed and the base rate (which is -2%) is what is. Determining a value that takes into account perceived long term risk and then keeping it there is probably the best bet for now, at least until we overhaul the way we set stability fees. I could see ETH-A going as high as 4% for RP and then at least we can focus on other things. My main concern is trying to keep track of weekly rate changes from BR adjustments at this point. I hope someone can come up with a better way to do this soon.

2 Likes

Fair point. I missed the base rate aspect to it.

in that light, the “target” risk premium (excluding all other factors eg monetary policy) with a 150% CR is probably closer to 2%

2 Likes

Wanted to highlight this signal again before it closes.

Please vote for everything you’d accept. I see people voting for ‘more than 2%’ and not voting for 2% which I’m guessing most of you would prefer to 0%.

If this doesn’t end with a majority, I’m inclined to say that it should go on-chain anyway as a ranked poll. This is a critical parameter which we’ve left unset for some time, I’d like to give MKR Holders a chance to vote on it as well.

I would rather it reaches a majority so I can put it up as a yes / no proposal as we’ve done with risk premiums in the past, though.

4 Likes

Last call before I close this up. 2% vs No change are neck and neck.

2 Likes

I honestly think a lot of people remain confused about risk premium and stability fee. A lot of people who voted to raise the risk premium by 2% actually want the stability fee to be 2%- in fact if we raise the RP by 2% the SF will still be 0. I hope we resolve this split opinion by voting on whether to raise the ETH SF to 1%- which I think would be very beneficial right now.

2 Likes

Yes, it should directly point out the SF option of Ethereum.

I think we already have a working model which is base rate + risk premium and IMO most of the people who voted took that into consideration when casting a vote.

We may agree or not on the base rate conveniency but so far it’s the model applied and voting on a SF would be a confusing message which should be handled separately.

IMO this is a medium to long term evaluation of the community sentiment of what is the actual risk premium eth should have in basis of the presentation made and/or other arguments.

1 Like

I think people are fine with a 2% ETH-A RP, and having ETH-A still be 0% SF for now.

Poll is now closed. 2% won with 46% of the total votes. An on chain governance poll will be put forth on Monday, September 21st to determine whether MKR voters would like this new change. Thank you all for participating.

3 Likes

MKR holders voted to include the risk premium adjustment in the September 25th executive which has since passed! Thank you to all who participated in the forums and on-chain. See you on the next one!

2 Likes

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