[Signal Request] New vault-type for ETH with a higher LR

Overview

Both ETH-A and ETH-B are heavily used and we are already facing the dilemma of trading-off risk VS business growth. Both ETH-A and ETH-B are in a spot where increasing the DC is questionable, as the protocol might end up with losses in case of another wave of liquidations.

Still, we need to anticipate that DAI is popular and people want to leverage their ETH.

@Primoz came up with the idea of creating a new vault-type for ETH with a lower LR, which will highly reduce the risk of the protocol losing money on liquidations, while on the other hand offering lower SF for people who want to stay heavily overcollateralized.

This signal is about finding out if the community wants the risk team to come up with a proposal for a ETH-based vault type with a higher LR and a lower SF.

Pros

  • more DAI in circulation
  • another hopefully valuable addition to our portfolio for risk-averse people willing to mint DAI
  • less risky for the protocol than ETH-A

Cons

  • some work for the smart contracts team, as this is not only configuration

Should we add a new ETH-based vault type with higher LR and lower SF?

  • Yes
  • No
  • Abstain

0 voters

Next Step

Poll will run until January 28th and depending on the result will move on-chain assuming the outcome of the poll deems it necessary. If the domain teams feel this should run shorter so it can be implemented earlier, I will update here accordingly.

6 Likes

Going to support the protocols in the ecosystem on this one

1 Like

How does that conflict?

I voted yes, but I don’t consider this a high priority. I’d rather see progress on the already queued mountain of TODOs. Heart my post if you agree :grinning:

3 Likes

Same here I voted yes, But the priority should be to make this 400m at work.

Also as this vault will target newbies ( experimented users know that rate doesn’t count as much as a low cf ). it is in contractions with the 2000 minimum to open a vault.

Check out this write-up By Nim

Also – did you see what Alexis wrote up there?

:point_down:

I was under the impression that we agreed that Maker Vaults were not for newbies, and rubes… ¯_(ツ)_/¯

1 Like

BTW I do see a large opportunity/window to gain versus lenders/CeFi. Traditional banks in the U.S. are Flushed with Cash–but not lending:

“Dimon has funding coming out of his ears. JPMorgan’s retail deposits swelled by one-third to nearly $1 trillion, and capital is well above regulatory minimums. Dimon often refers to his “fortress balance sheet,” and the term is ever more apt. Yet Dimon’s loan book, a gigantic $985 billion, didn’t grow. The $19.2 billion net increase in loans to consumers and small businesses in 2020 can be accounted for entirely by lending through the Payment Protection Program. Those Covid-19 relief loans are essentially backstopped by the government, and don’t soak up regulatory capital. Of a $39 billion increase in lending that wasn’t to consumers, more than half went to clients in the wealth management division.” –Reuters

I just don’t know what the best path forward is… We can always Yolo and find out :slight_smile: assuming we’ll accept the downside…

Is the plan to have ETH-A capped at some point? Currently ETH-A’s SF is so low, an even lower SF for ETH-C won’t do much to attract people.

2 Likes

just based on the comment from Primoz on the last ETH-A-DC-signal I sense that risk is not super comfortable with the latest increase.

The higher LR is just adding a lot of buffer to the potential protocol losses, that’s why I hope ETH-C could be a nice mitigation.

Also, ETH-A SF is not really low: 2.5/3.5%. I can get <1% for putting up my house as collateral :wink:

I don’t think this will only target newbies. People who are heavily overcollateralized might just want to switch over to ETH-C just to save some % on the SF (I for sure would do that)

I haven’t done the math, but for the same liquidation risk you will save max 2% for 33% capital increase. For 1m it is 750k vs 500k at max. Compound is at 7%. I believe you should think about it and reconsider eth-a.

Only difference is that if you get liquidated you may get more in return if liquidation works as expected. But in anycase that wouldn’t be a good investment.

I am not sure at 100% but it doesn’t seem to be a good deal.

However most people look at the rate especially new joiner.

Right now, 51% of ETH-A dai is above 400 CR, 10.5% is above 700. It is reasonable to think that some of them might swap. Maybe there are some users that just want small leverage on their long-term position.

For Maker, I think it is much better to increase eth exposure with higher average LR vaults than just increase DC and SF. At some point, we will inevitably have to think of other options, than just increase the SF.

2 Likes

If you swap your leverage risk increase a lot. It will turn the same way.
I believe people think that it may return to 600 and doesn’t want to be cought. But if you swap your position becomes riskier.

However, I am in favor. I just think that people with experience would prefer economically eth-a or eth-c.
May be I am wrong.

I guess the another argument against is whether we actually make the system safer with ETH-C. If those users would use high collateralization anyways with ETH-A. And we’d be earning less SF.

1 Like

That is a valid point. However, this might also be a way of having more DAI from Eth without more risk (we would have from ETH-A)

In the end we don’t know if this gets adopted, but it is probably a low effort potentially high reward (not in terms of fees, but more DAI in general)

I think ETH-C has no market and no competitiveness. High LR provides a certain buffer, but it is not competitive compared to other markets.

4 Likes

Yes. the spice must flow

I see this proposal only as temperature check whether community finds such product valuable at all, but not necessarily something we implement immediately. ETH-A DC still has some buffer left before it becomes too dangerous to increase it further. We are lucky that ETH-A Vaults are well collateralized on average, but should this metric become worse, I will recommend implementing ETH-C and limiting ETH-A DC. I assume there are concerns about ETH-A integrations of other DeFi protocol, but this is exactly the case why we should be having this discussion sooner than later, because we can not just simply assume ETH-A DC has no limit.

ETH-C might be a bit uncompetitive in DeFi but Maker is the only platform (afaik) that allows users to unwind during 1h OSM delay, which means sophisticated users can afford to maintain their CR closer to LR.

3 Likes

That is a good point, I believe having a higher LR allow an higher OSM delay which would make new joiner more comfortable about opening a vault.

Having a different OSM should help to spread the risk too.

What is eth biggest deep in
2hours/6hours/12hours/24hours

I see that proposal as any other proposal. If it gains enough support, it should have the same priority as any other proposal. Since the ETH vaults are close to the DC, and since DAI is at the peg or above, opening another vault could help with the peg and with decentralization.

After looking into this some more I’ve switched my vote from abstain to yes! I think there are a lot of neat applications exist for such a vault type, and ultimately with such a low implementation cost (and much lower risk parameters compared to our current offerings) seems like the right path to be on. Great Signal @ultraschuppi!

2 Likes