[Signal Request] Increase the Auction Surplus Buffer by 2m (System Surplus) - October, 2020

Hey all,

I have written here about reasons to increase Surplus Buffer due to potential inability to collect current and future accrued fees on debt from stablecoin collateral. I have tried to address some concerns that may have not been addressed before this poll where people voted in favour of not increasing Surplus Buffer.

I am going to run another poll, by proposing a 2m increase of the Surplus Buffer. At current rates and potentially implementing this increase on next Friday’s executive vote, this buys us about 5 weeks time from now before we hit it again.

Another reason for increasing Surplus Buffer that I haven’t addressed in my previous post but mentioned on the G&R call is that Maker currently has around 900m debt exposure, of which 420m is based on volatile collateral. Ideally Maker should be always aiming to have between 2% and 4% buffer available for loss coverage (these levels are based on risk premiums). In case Surplus Buffer is increased to 4m it would represent around 1% of debt from volatile collateral and is somewhat better than the current 0.5%. Although still not ideal in my mind, it is a step forward.

Should we increase the Surplus Buffer by 2m?

  • Yes
  • No
  • Abstain

0 voters

Poll is open until this Friday and will proceed to Monday’s on-chain Poll.

6 Likes

just a side point on the cons as previously discussed :
Increasing Surplus buffer removed supply and therefore will increase USDC exposure by the same amount.

My understanding is that we can’t take the risk of having a usdc at 101% and increase buffer that removes the benefit of it.
It is like taking two actions that goes on the opposite direction.

Feels like this is a key point here. Even disregarding the stablecoin issue, the total debt has increased faster than the buffer.

On a sidenote @Primoz can you add an abstain option :slight_smile:

Edit: Have updated the poll at Primoz’s request. Please vote again if you had already voted.

4 Likes

Seems like we’re stuck between a rock and a hard place.

1 Like

Added the active-signal tag.

Seems like a good idea to raise the surplus buffer due to the volatile debt exposure.

Are you still considering lowering stability fees on stablecoins?

1 Like

I support increasing the surplus buffer, but I hope to increase the surplus buffer of 500,000 DAI every month until the stablecoin risk is eliminated. So I chose to abstain.

I missed that, thanks. Though for future reference we’re using #sig-status-active now alongside the #governance:signal-requests category.

1 Like

There are some pros and cons to this. In case we believe DAI price can fall faster than the CR of these Vaults, they will self unwind. Speed of CR decrease is of course related to SF: lower SF leads to slower CR decrease. In that case it makes more sense to lower SF so that there is a higher chance of repayment and less reliance for liquidation.

On the other hand this doesn’t necessarily maximize return for Maker. Because if CR is pushed all the way down to 100% before self unwinding occurs, there is still a chance to collect full 1%. But then we would need to be sure there is enough DAI supply below 1 to actually collect these fees.

So to me it seems like some kind of tradeoff where one would need to have a really good estimation of speed of DAI price starting to trend lower so that collection of these fees is optimal. Plus governance needs to decide whether the goal is to get rid of stablecoins quicker rather than later, because unwinding will lead to another push on DAI price upward. So for instance if fees are disabled today, it will take more time to push DAI price down from 1.01, although stablecoin exposure will drop faster (in a scenario where DAI demand < DAI supply).

Why this wish to unwind stablecoin Vaults?
As far as I see it, as long as the Collateralization Ratio is high enough we could in theory have a very high share of stablecoins? Is there something I am not seeing here?

1 Like

I thought that too, but the main problem is that we don’t get pay for the collaterals we own.

Closing the poll now. As said, vote to increase Surplus Buffer by 2m goes into Monday’s on-chain poll. Thank you for participating.

2 Likes

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