Signal Request: Should we reduce the USDC-A collateralization ratio?

Hi everyone,

With the peg still over $1 and yield farming/bull run seemingly not ending anytime soon I wanted to ask the community to signal whether they think we should further reduce the USDC-A collateralization ratio to further incentivize DAI minting with USDC to “arb” the peg down.

Pros:

  • Encourages more DAI minting with another stablecoin which will have a downward effect on the peg

Cons:

  • Creates more systemic risk by trusting a centralized authority with overall collateral/peg integrity
  • Creates further incentive for USDC Vaults to never pay back their DAI
  • If liquidations are turned on, depending on the LR/peg, keepers may have difficulty profitably liquidating these vaults

Should we reduce the USDC-A collateralization ratio?

  • Yes - 101% CR
  • Yes - 102% CR
  • Yes - 103% CR
  • Yes - 104% CR
  • Yes - 105% CR
  • Yes - >105% CR
  • No
  • Abstain

0 voters

This poll will end 2020-09-08T04:00:00Z

Next Steps:

If passed, this signal request will turn into a pull request to be added to on-chain governance polling the following Monday.

5 Likes

I voted no, but happy to join the 105% (or lower) pack if someone (domain teams?) provides an analysis that liquidation is not a problem.

3 Likes

Surprised 101% is getting so much traction. This will be interesting.

2 Likes

Same from me.

If there is a heavy split between 101% and 105%, this might be an instance where a ranked on-chain poll is the best way to reach a compromise option.

We’ll see how things develop though, still early days.

3 Likes

I suggest to choose 101%. After trying SF to 0, we did not see the expected effect, we need to change the method.

2 Likes

Well this is going to be contentious lol. Interested to see how this plays out. Will probably do ranked choice vote for the governance poll unless things change during the week. Looking forward to discussions in the governance call.

I don’t think 101% is the solution. You’d need to raise the USDC-A debt ceiling to 200m and you might need to raise it further.

Also lowering the USDC-A CR to 101% is in direct conflict with proposals to raise the base rate.

1 Like

Can you explain how it’s in direct conflict? Is this because liquidations are turned off and so having stability fees accrue on 101% USDC-A would have the effect of discouraging repayment of collateral?

4 Likes

But if we want to encourage more DAI minted from USDC, why the recent vote to reduce DC from 140M to 40M? That has already greatly reduced the mint-able DAI from USDC

2 Likes

Reducing USDC-A from 140M to 40M is just to avoid people filling the USDC vaults if USDC has an issue. It is expected to be raised as needed towards 140M at least in normal usage. It’s just risk management.

4 Likes

No one is arbing the peg because the debt ceilings are too low to do so effectively. If you mint all the DAI possible and market sell it on Curve, it won’t even go below the peg on that one DEX. Let alone the entire ecosystem.

It does not make sense to me to reduce the security of the system via reductions in collateralization ratio, stability fee, or liquidation rates while we are artificially capping the supply via debt ceilings.

1 Like

@jernejml (I guess) and myself would love to have an answer on this question.

101% CR and a hopeful positive SF (which is the point) means that liquidation will be needed. I don’t see how that works if DAI remains at or above 1.01 USDC or if the accrued interest are above 1%.

2 Likes

I would also be more comfortable lowering USDC CR to 101% if liquidations were turned on…

1 Like

@SebVentures @rileyjt @jernejml @chonghe @Davidutro @rema @alexis @Planet_X

Hi, you all voted for No for reducing the USDC-A collateralization ratio. Consider voting for Yes - 105% too. Currently 101% CR is winning with 36% of the vote (Though that’s quite low).

Poll ends tomorrow!

1 Like

Given that the outcome is split between 101% and 105%, and that in general ‘Yes’ is winning, I think it makes sense for this to go on-chain as a ranked vote with basically the same options as we’ve had here:

  1. 105%
  2. 104%
  3. 103%
  4. 102%
  5. 101%
  6. No change

Feels like the only strong consensus here is that it should be lowered, but not by how much.

7 Likes

Sounds good!

I changed my vote from “no” to 105% and 105%+ because it feels more optimal than 101%.

101% is expedient. It will fix the problem faster, but kicks the can down the road. It invites fewer whales to solve this problem for us, but this creates a problem when those few whales with all that debt need to deleverage quickly.

Better to have 20 whales than 2 or 3.

Since the 20 will average out the deleveraging in a less chaotic way. The actions of one whale are sudden. The actions of 20 or 30 are distributed and strengthen the solution to this problem.

I hope I am thinking about this right. Interested in hearing others who agree with me.

3 Likes

changed too as the situation changed,
seems that we need to increase the debt cell on top of that

2 Likes