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

Overview

DAI minted from WBTC been increasingly popular recently - the amount of DAI has tripled in the last month.

image

This development was the reason for yesterdays Mid-month Parameter Proposal of the MOMC and this Signal Request is about to follow up on an idea @Primoz brought up: providing a new WBTC-vault-type with a higher Liquidation Ratio.

To summarize: if we encounter a large market downturn on WBTC vaults running with a higher Liquidation Ratio are less likely running into liquidations resulting in a loss for the protocol (and with that also the vault owner). More details on the state of WBTC can be found here.

With the introduction of WBTC-B the situation might get even worse, as the capped line for WBTC-A might force users in the even riskier vault-type.

Shall we add a new WBTC-based vault type with a higher LR?

Pros

  • we could offer a WBTC-based vault with a lower Stability Fee - attracting more risk averse users
  • if it gets adopted, we might be able to support more DAI from WBTC getting minted without increasing the fees (as the need to cool-down is lower)

Cons

  • we will likely see some WBTC-A vaults moving over to the new one, resulting in fewer revenue on them
  • this is not just a configuration, but requires work in the Core Units
  • No
  • Yes
  • Abstain

0 voters

Next Steps

The Poll will run until 2021-11-19T15:00:00Z, its outcome will result in an on-chain-poll assuming the outcome of the poll deems it necessary.

4 Likes

For me it makes sense to introduce a third WBTC vault, given the recent significant increase in DAI generated from WBTC. Just want want to get you view on one quick thing. Here you say that “Maker also became the largest holder of WBTC, surpassing Aave and Compound. As much as this sounds promising, it means Maker carries the largest liquidity risk.” Introducing a third vault, and especially one that requires more WBTC in collateral, could most likely lead to Maker becoming an even larger holder of WBTC. How do you think this risk balances against the reduced risk of liquidation losses due to higher collateralisation on these vaults?

1 Like

I don’t think adding a third WBTC vault would lead to Maker becoming a significantly larger holder of WBTC.

Pushing this to the extreme, if there was 20 types of WBTC vaults it wouldn’t lead to maker holding 20x more WBTC, it would just give more suitable options to people who plan to open a WBTC vault of some sort anyway.

If Maker was concerned about holding too much WBTC, I think the right approach would still be to offer as much options as possible but to increase the stability fee across all WBTC vaults.

1 Like

Very good point!

1 Like

I think there might be less user demand for a high liquidation ratio WBTC vault (eg WBTC-C with 170% liquidation ratio matching ETH-C), because WBTC vault users face some Bitgo custody risk with their pledged collateral. This incentivizes people to have relatively less overcollateralization (less money they would lose if Bitgo was hacked, etc).

Maker also faces this custody risk, where if Bitgo lost funds vaults could become undercollateralized even if they started with a high collateral ratio. So one could argue that Maker gets relatively less benefits from high collateralization with WBTC versus ETH vaults.

I’m in favor of trying this out, but don’t think we’ll see quite the same level of adoption as we have with ETH-C :slight_smile:

Thanks everybody, this Signal Request is now closed. I expect an onchain poll (probably in combination with the proposal for the initial configuration) happening on 2021-11-21T23:00:00Z

1 Like