[Signal Request] Should we raise WBTC Debt Ceiling?

Overview

With WBTC reaching a new high of ~11k WBTC minted is it time to again consider raising the debt ceiling? We’ve so far seen fairly significant demand for WBTC loans. Currently, it backs about 10% of all dai minted.

You can find a brief overview of some of the risk considerations to be made around this collateral in this thread

At a high level the pros are:

  • Increase the ability to provide long leverage for one of the most in-demand assets in the portfolio.
  • Potential increase to overall DAI supply
  • Potential increase for protocol revenue from the non-zero SF

Cons:

  • Increases exposure to WBTC custodial risk
  • Increases exposure to BTC volatility

Ceiling adjustment

Here are a few polling options that approximately spaced around $13.75 MM apart (so I can have 5 options) with the top option being about 75% of the current WBTC supply

  • 20MM (no change)
  • 34MM
  • 48MM
  • 61MM
  • 75MM
  • Let the risk team decide
  • Abstain

0 voters

Risk Premium Adjustment

  • 1%
  • 2% (no change)
  • 3%
  • 4%
  • 5%
  • Let the risk team decide
  • abstain

0 voters

Next steps

Poll will run for one week and depending on the result will move on-chain assuming the outcome of the poll deems it necessary

5 Likes

I do feel like the increasing the debt ceiling will suck more WBTC into existence. I’d like to see what the risk team thinks. Maybe we are waiting for ren-BTC and tBTC?

Going to plug the Practical Guide to the Signaling Process again. If you want to run some informal polls, then this doesn’t have to be a signal request. If it is a signal request though, please do your best to cover the ‘must-haves’ in that list (and give due consideration to the ‘should haves.’)

4 Likes

I’ve been campaigning over there as well. [renBTC] MIP6 Collateral Application, but the one thing to consider on that front is the timelines.

With the current timelines / mips process I think it is safe to say that renBTC is at least 4 weeks out.

tBTC who knows. That project is in a pretty odd state ATM.

3 Likes

I’m against raising the DC for any coin except ETH because I don’t see any improvements after repeteadly doing so. People just stop buying DAI after it reaches 2% (next time maybe 3%…).

I don’t think we should allow DAI to be backed 50%+ (even 20% is too much for me) with wBTC+USDC+USDT…).

Personally I would like to see a co-ordinated effort to get another 50M DAI of liquidity out there. Really as an experiment to see if it would even put a decent dent in the PEG (1.014 to perhaps 1.005) - which at this time I think is less rather than more likely but it would be an interesting test.

USDC-A SF down from 4-3 (maybe 2 even)% leave DC for now until it gets soaked up.
WBTC SF down from 2-1.5% up DC at least 10M - maybe 20M
PSM of 20M but I’d like to see a PSM that would control rate of use by having a variable pricing band that changes based on how much stablecoin is in the facility. Still working up what I consider best case PSM design.
I think LINK is risky to add but think it could also mint 10M DAI if the LR is reasonable (150-170), SF of perhaps 2%.

I am also interested in Lev’s MIP20 approach but don’t think it has enough teeth for what we lose. If we are going to give up on the 1:1 DAI backing I’d rather do it in a way that has significant teeth and in two steps. Threaten to do it (via a MIP proposal) then if the markets don’t flinch actually Mint 1% new DAI from thin air, run with a negative surplus. If the markets still don’t flinch then buy assets with the funds and keep them outside of the system. But I think a real discussion on ranking what are the most important constraints to maintain probably would be a good option because I have yet to see consistent views regarding ranking constraints in terms of importance that we can use to drive MIP monetary policy tool development.

BTW: I voted to increase WBTC by 10-20M and lower or keep same SF.

3 Likes

Yeah hard to say what an extra 25% might do price wise. Given the current situation seems like a great idea though. One question on the above:

Why decrease the SF here since we are seeing pretty significant demand at the current rate? Seems like we would just be cutting the cost to borrow just for the sake of doing it.

1 Like

Good question!

We already have high demand so yeah probably keep the SF exactly the same until they won’t eat up the extra DC and then maybe lower it a little.

I like that with some of these the protocol is getting some fees. Given the really significant demand one could argue to raise the DC and raise the rate a little on this one. I think what I wanted to see was a kind of set of rates that were pretty consistent across the board excepting some extra RPs on some.

Some of the SF’s kind of don’t make sense from a RP perspective. USDC-A at 4%, with ETH-A at 0% and wBTC in the middle at 2%… Just doesn’t look consistent from a monetary policy perspective. Is USDC actually more risky than wBTC at this point?

1 Like

I agree on this.
If we treat ETH and BTC as deserving the same Risk Premium (0% right now), USDC-A and WBTC should probably have the same stability fee unless we think Circle and BigGo deserve a different Centralization Premium.

The current demand for DAI is strong, and we should increase SF while increasing DC. If DC drops, SF should be reduced at the same time to stimulate an increase in DAI supply.

1 Like

We may not have a consistent policy but we do have a consistent target. Ensure the peg and optimize DAI supply while maximizing revenue/reserves.

What do we need to ensure the peg? Not a simple question but part of the answer now is to increase supply

How de we do that? Reducing fees/New collaterals

What happens if the fees are below the risk profile of the asset? It’s a trade off between the collateral and the peg, we choose the peg. Perhaps other options changes this trade off but sadly it’s all we have right now.

If there is high demand for a collateral, should we increase the fee to capture more profit? As long as the supply is increasing helping support the peg definitely yes. We should optimize and another way to look at it is that is subsidizing eth 0% fees. If another black thursday were to happen I would want the biggest war chest we can have and that’s not going to happen at 0% rates :disappointed:

2 Likes

I do believe this is timely.
In beginning of May WBTC was added to Maker with market cap of ~1100 BTC = ~$10mm and it was given a 10mm DAI debt ceiling. Besides the centralization risk, the two issues that were brought up at the time were low liquidity and the fact that the community was unsure of demand for WBTC outside of Maker.

The two above issues have shown significant progress.
Currently, there’s a market cap of around ~11000 WBTC = ~$100mm. Although a good part of this growth has been due to Maker, a large part of the demand has been outside of Maker.

Additionally, there are around 5 new merchants being added to the WBTC ecosystem and this allows the ecosystem to scale liquidity much better with demand.

10 Likes

Updated thread summary to include pros / cons and next steps assuming we don’t see any changes in the poll outcome.

2 Likes

The deadline for submitting a PR for a on-chain poll on any given Monday is end of day on the prior Wednesday

@Andy_McCall Just keep this in mind.

1 Like

So, I don’t think we should be comparing the risk premium of USDC-A. They’re quite different monetary policy wise.

Currently raising the WBTC debt ceiling to 34m is winning. Seems like most people are okay with a raise. I think that’s a great idea. The WBTC ecosystem is growing, there’s the very liquid curve pools.

Also, it seems there’s a lot of demand to mint DAI using WBTC. If we have a need for emergency action, more DAI liquidity, it might be a good idea to increase the WBTC debt ceiling too.

1 Like

When can we achieve automatic adjustment of DC and RP, our semi-automation now affects efficiency.

@hongbiao_li Takes time, there was MIP17, but it needs some refining.

1 Like

MIP17 didn’t pass so still need a proposal that more people agree on

2 Likes

IMO there is a reason why wBTC immediately maxed out the limit even before DAI demand was outstripping supply. People are using the system to shift custodial risk of wBTC to Maker. They retain the upside of BTC, but if wBTC goes to zero, they can default on their vault and keep the DAI while leaving MKR on the hook.

I am all for small experiments with assets like this, but this is not something we want to try to scale up. The custodial risk continues to increase as we add more value.

8 Likes

Poll has been open for 7 days at this point so I will close them now. It seems that people are in favor of raising the DC slightly to 34MM with no change to the risk premium. Will put together a poll pr shortly and post the link in here after it is done.

8 Likes