[Signal Request] Lower the UNIV2DAIUSDC-A Liquidation Ratio

Now that we have liquidations-2.0 online we get some flexibility with stable collaterals that previously needed larger buffers because they couldn’t be liquidated. One such collateral that I think is a good candidate is UNIV2DAIUSDC-A. Currently the liquidation ratio is 105% which allows for 20x leverage. Looking at these charts the APY on this pool has come down to about 1% which is about break-even after you deduct the stability fee. I’m proposing we lower the SF to 0%-0.5% and the liquidation ratio down to 101%. This will allow for 100x leverage which makes even these modest APYs pretty decent. The risk profile is generally the same as USDC, so I think this is an overall plus.

Pros

  • Move unproductive USDC out of the PSM into this pool
  • Uniswap LPs provide one layer of removal from USDC blacklist risk (Circle would have to blacklist the whole pool)

Cons

  • Governance / risk / dev time (this is parameter change so fairly minor)
  • May be a waste of time as liquidity is moving to Uniswap V3
Should we lower the LR?
  • We should lower the LR to 101%
  • We should lower the LR to 102%
  • No we should keep the LR at 105%
  • Abstain

0 voters

Should we lower the SF?
  • Yes lower the SF to 0%
  • Yes lower the SF to 0.25%
  • Yes lower the SF to 0.5%
  • No keep the SF at 1%
  • Abstain

0 voters

Next Steps

Voting will run until Sunday June 6th. If either one of these polls passes then an on-chain vote will created next week Monday, June 7th. This is a slightly expedited signal request as I believe it to be probably uncontentious, and we are receiving fairly bad press from the USDC in the PSM. If the on-chain vote passes then these settings will be combined with the rates group proposal set for next week’s executive (or done in isolation if the rates group proposal does not pass).

5 Likes

Might want to increase the auction size and dust size with 102%.

Liquidations 2.0 is more efficient but there’s still tip costs (300 DAI), and gas costs and profit margins of liquidation bots. Auction Grinding is a bigger risk with such low LR’s.

Yes care needs to be taken on evaluating all the other parameters. This is mostly to gauge interest in lowering the CR.

1 Like

To those voting to keep the SF at 1%. Unless volume improves on the pair this rate is currently not profitable and the unwinding will likely continue.

APR over the last 2 weeks.

image

3 Likes

I voted ‘Abstain’ as I think the Liquidation Ratio (LR) and the stability fee (SR) can be better calculated by the Rates group compared to my opinion about the matter.

NB: And that applies to a whole range of our collateral. With Liquidation 2.0 now having been proven a success we could improve the situation for the Vault holders across the board.

So this decision to lower the LR is not normally handled by the rates group (to which I am a member). This needs to be signalled separately which is why I put the poll up.

1 Like

This would encourage people to swap USDC from PSM to LP token and maintain the DAI-USDC peg. Totally makes sense to incentivize this behavior through lower rates.

2 Likes

Looks like this poll passed. 101% and 102% CR both achieved > 50% and 0.5% SF. These options will proceed to an on chain vote.

3 Likes

There’s an error for the text in the poll under the review section. The first two options are the same. Looks like the actual voting options are correct though

@hexonaut @prose11

2 Likes

Thanks for catching this. Won’t be able to submit a fix without messing up the votes IIRC, but seeing as the actual voting options are correct that shouldn’t invalidate the result.

1 Like