After observing the USDC PSM in action for over a month now, it is becoming clear that the fees in the DAI → USDC direction are uncompetitive. So far the PSM has only produced ~$100 in trades going in the DAI → USDC direction. The Rates Working Group would like to propose lowering the
tout parameter on
PSM-USDC-A to encourage more trade volume.
There are a few considerations to make in what the new rate should be. I’ll do an overview of each:
Currently Curve provides the best rates when DAI = USDC for any trades around the ~10M or less mark. This is because their fee is 0.04% whereas ours is 0.1% and they have very little slippage around that level. As you increase the trade size, the Curve slippage increases so the PSM becomes more competitive, but there aren’t that many trades at that size. By lowering the fee we will begin to eat into the market share of Curve and increase trade volume / revenue.
Around the Curve fee there is an asymptotic effect that we need to take into as well. Since the PSM does not have slippage, we will be strictly dominant over Curve if we set
tout to 0.04% (assuming 1 DAI = 1 USDC). This is potentially undesirable as it may cause liquidity on Curve to dry up although it’s worth noting that most of the APY is coming from CRV farming so it may not matter that much. Curve may also decide to lower their fees in response.
There is likely a “sweet spot” where we can improve volume for the PSM without affecting Curve liquidity.
The closer we get to a 0%
tout, the quicker the USDC will drain from the Maker collateral pool. This may be more or less desirable for some.
By tightening the
tout parameter we will end up draining the PSM faster than if we didn’t. This will provide less of a buffer in the event of a sudden DAI demand drop-off. It’s unclear if this is a problem, but it’s a consideration none-the-less.
- No, we should leave it at 0.1%
- Yes, we should lower it to 0.075%
- Yes, we should lower it to 0.05%
- Yes, we should lower it to 0.04% (Curve Fee)
- Yes, we should lower it to 0.025%
- Yes, we should lower it to 0%
This poll will run until Thursday, February 18th to be included in an on-chain vote the following Monday, February 22nd if any options gain >= 50% of the vote (ignoring Abstains). A ranked choice vote will be used if multiple options are >= 50%.