Creation a USDC-M vault with no stability fees and a liquidation ratio of 100%. Only whitelisted address from Maker can use it. This bring the ability to unlimited leverage if needed to:
- Fix the peg
- Turn on the revenue stream (separate the SF parameters from fixing the peg)
- Make a profit doing so
It is quite similar to the PSM but manual (PSM prototype?).
The Maker Protocol is a two sided business. Vault owners want to get DAI loan (producer side), DAI users want to have DAI (consumer side). Both want 1 DAI = 1$. Currently we have more consumers than producers. We set the SF to 0%, DC are not used to their full extends.
With a USDC-M vault with no fees and a liquidation ratio of 100%, we can have unlimited leverage and arbitrage ourselves the DAI price.
The USDC-A lower LR proposal is similar but I think less effective (higher exposure to USDC for the same effect, leaving the profit to the users, having to handle “abandoned” USDC-A vaults that are not easily liquidated).
This proposal is very similar to the quantitative easing programs from central bank that were quite effective at setting rates.
Quantitative easing process
- Create a USDC-M vault that only some wallet can use (i.e. only Maker) with no SF and LR @ 100%. No limit or a 100M USDC limit.
- Borrow 100K DAI with a flash loan ( as an alternative to take 100k DAI from the surplus buffer)
- Sell the DAI to get USDC (around 101k USDC at first iteration, more later)
- Use USDC as collateral in the USDC-M vault to generate 101k DAI.
- Pay back 100k DAI of the loan, use the 1k DAI remaining to get ETH for transactions costs
- Repeat from 3 until the DAI don’t sell at 1.005 USDC/DAI.
- Unwind if 1 DAI <= 1 USDC
- We control the whole process
- 100% of the generated DAI goes to pressure the peg downward. This is unlike the behavior of USDC-A that tend to keep the DAI in a Compound loop (very limited impact on the peg at best).
- When we unwind we most likely make a profit
- We can liquidate at any time.
- We can stop the process anytime if the results are not great
- We can say “we do whatever it takes, and believe us it will be enough, don’t fight MakerDAO”
- That would enable Different Approach to Rate Setting
- The 1 DAI = 1$ of collateral is kept
- A lot of manual work (fake it until you automate it), therefore operational risk
- Operational burden (who do it, under which supervision, …)
- If 100M DAI from USDC is not enough, it will increase our last accepted exposure to USDC.
- May have unwinding issues if we want to unwind when DAI is expensive.
- A government may freeze MakerDAO USDC collateral
- The strategy may have limits as it would be public and may be front runned (pro or con not sure).
Further possible iterations
- Add other stablecoins vaults (TUSD, PAX, GUSD, …) as soon as possible to diversify risk, including cDAI and similar
- Automate it and create a whole framework to make it a peg stabilizer (a real PSM).
- Signal Request: Should we reduce the USDC-A collateralization ratio? Alternative proposal to lower the USDC-A LR for all customers
- MIP20: Target Price Adjustment Module (Vox)
- [Poll] Should MakerDAO print unbacked DAI to solve the peg issue? First iteration of this idea
- MIP13c3-SP3: Declaration of Intent - Strategic reserves fund (SRF) can be used as source of funds
- Different Approach to Rate Setting
- [Discussion] cDAI/aDAI/yDAI collaterals as a peg enabler tool
Do you want to put forward this quantitative easing plan (Maker leverage a USDC-M LR100% SF0% vault to fix the peg)?
- yes, this is the way
- no, not a good idea
If you voted no please help us understand:
- I voted yes or abstain previously
- No, I prefer the USDC-A with lower LR solution
- No, I want the PSM
- No, I want negative rates
- No, I want unbacked DAI
- No, the solution is RWA collaterals
- No, the solution is adding more collateral
- No, too much operational work
- No, we can’t use the surplus buffer for that
- No, the peg is not such a big issue
- No, I don’t like USDC
- No, we should do X instead (please explain below)
- No, I have another reason (please explain below)
The poll will be open until 2020-09-07T22:00:00Z