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

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


I thought the idea was to create a sort of PSM indirectly.
If the liquidation is turn on, there is no point. as we are going to sell it for dai and it will be back to the beginning by reducing the supply.
if it is turn off, we own the debt and we can turn it on when the peg is under 1.

A 105% collateral ratio doesn’t just cap the DAI price at 1.05.

Vault holders can still short DAI with high leverage ratios before then.

$1.04 DAI - Can short with 104x leverage. 102% ROI if DAI drops from 1.04 -> 1.03
$1.03 DAI - Can short with 52x leverage. 52% ROI if DAI drops from 1.03->1.02
$1.025 DAI - Can short with 41x leverage. 41% ROI if DAI drops from 1.025->1.015
$1.02 DAI - Can short with 34x leverage. 35% ROI if DAI drops from 1.02->1.01
$1.015 DAI - Can short with 29x leverage. 30% ROI if DAI drops from 1.015->1.005

And if you annualize these returns, they could be quite high. And you can’t even get liquidated.


Yes, but we also can end up with dai being undercollateralized.

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less or same risk as the PSM - we will be some percent on top of it.
Anyway, we need to create some supply by one way or another.
this way doesn’t seem the optimal one, but we have been in this situation for months now without solution.

It is correct that lowering the LR gives you a better option (capital efficiency/leverage) to play the DAI price decrease.

Entering the trade will decrease the DAI price. But if nothing changes, exiting the trade will put you back in the starting position with no profit (if curve model is symmetric which I guess).

You will be able to unwind only if something else change. If DAI = 1 USDC, I will buy some DAI to repay a vault. If I’m representative, the trader can now only unwind with a loss.

No rational trader will do that.

You can argue that you have time. But if you have SF > 0%, at some point, the trader will no longer make a profit anyway. The vault will be forgotten and will result in bad debt when liquidation will be enabled. Those last month are not evidence to expect the peg to be restored in the short term, quite the opposite.

Again, no rational trader will take that risk.

Now setting the LR at 101% allows an immediate profit for the first traders (until 1 DAI = 1.001 USDC). But they won’t repay the vault if nothing change. Same problem. At the end you end up with a lot of USDC on Maker balance sheet (or a loss if you liquidate them).


When will that go on-chain? I hope we are not skipping this step in favor of Yes/No poll or bundling the change with the next exec without polling.

Next Monday (14th) assuming @ahbartch submits the poll wording to github tomorrow.

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In the long run, USD stablecoins will have LRs below 101% across the board. The community will look back at this moment with confusion, wondering why so many people were resisting even lowering it to 101%, in the context of a completely, horribly broken peg.

You think you are being risk averse, but gambling on a broken peg not killing the project is the most extreme risk taking you can possibly do in this situation. The painful contradiction is… unfortunate.


In the long run, we’re probably not going to have a lot of DAI minted from stablecoins.

Stablecoins won’t build up over time, but they will be used a lot by market makers to provide liquidity. If we would just set some sensible risk parameters…

I have multiple issues here the closer this gets to 100%. Really wanting to hear a cogent argument on how this would play out not on spin up. But on wind down.

  1. Say I leverage massively and then a 1-3% rate is dropped on me. Very quickly I could be looking at liquidation.

  2. Liquidations have not been turned on and we don’t even have a tested working liquidation system on this.

My problem here is that Maker could end up with a ton of USDC on the books and there is no hint that liquidity created by this facility is going to do anything to the PEG generally without a lot of DAI liquidity tossed at it. I like idea that fees ‘could’ be put on this and that ‘liquidations’ ‘could’ be enabled. But when I think of a LR of 1.01 my gut says do this right now and the facility will be maxed and probably for the most part abandoned. If we had liquidations on I might go for a LR of 105 but not 101.

I remember rune saying this isn’t a problem since the backing value to DAI is actually > 1.

I honestly think LRs in the 101 range are a mistake without having liquidations enabled as this means everyone will peg to max and if any fees are turned on and these people can sell DAI for > 1.01 they literally walk and let Maker clean up the mess afterwards by auctioning off USDC for DAI and either getting no takers or ending up taking a loss on this.

I also want to iterate. I have been one to short the PEG particularly in the 1.025 and up ranges because I have been able to close lower using various strategies but this is becoming more and more difficult and I still have some DAI to pay back on a small USDC vault opened. Leveraging I made basically 5-7% maybe 3-4% after tx fees to roll into leverage so honestly even with the current 110LR I made money this concept that somehow going to LR of 101 is desperately needed and ‘will’ fix the PEG magically without any reprocussions to Maker system. Good luck with that.

I voted no change because of the above. I might consider going to 105 LR but that is about it. I made some good money shorting the PEG and covering but a 105 LR isn’t going to encourage me to lever up from the 5x I have done to 10x. The lack of liquidations means I can go right to the limit anyway but I don’t feel comfortable doing that kind of leverage. Literally this facility can already act if the price gets to 1.025 or above. I am choosing not to anymore for a whole slew of reasons.

  1. Unpredicatbility of rate changes especially hard if I have high leverage.
  2. Are liquidations going to be turned on EVER? Inquiring minds want to know. What will Liquidation fees be - don’t even think you are going to get 13% at a LR of 110% even if people levered up (you get 10% max if you’re lucky this gets even worse as the LR goes down).
  3. What is the evidence lowering this is going to help anyone take on the DAI short and actually lower the PEG because frankly I don’t see a high DC with governance being extremely conservative regarding DC liqudiity to actually do this. (i.e. governance power here is limited because of the conservative approach to this PEG issue generally)
  4. What are the real risks here. I have not heard one word from risk on what implications are on a 105LR much less a 101LR?

So count my ‘NO’ vote here as a yes to LR of 105 but as someone who actually has shorted the PEG actively and done pretty well I am telling you changing the LR from 110 to 105 won’t do crap to change my trading here.

Change this to 105 and say you will never enable liquidations AND a SF on this vault and I will lever up everytime as long as fees don’t kill me on the size of my working capital for a trade. This is the truth from one real DAI-USDC shorter and trader.


For my strategy, I use max leverage. I’ve done profitable shorts from 1.03->1.015 with 14x leverage. That’s a 21% return in a week. Maybe $300+ in gas fees but still very profitable.

Alright, I’ve gone ahead and closed the poll. Great to see so much turnout! Since the results are rather contentious I will submit a PR for reducing the USDC-A CR as a ranked choice vote as @LongForWisdom suggested.

The choices will be the following:

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

I look forward to seeing the results next week! Thank you again to everyone who participated. I hope this will take us one step further to helping the peg.


Hi MM,

I am not sure if you replied to me by mistake or because i’ve changed my vote (from ‘no’ to ‘105 LR’)?
I’ve changed my vote only tactically since i preferred 105 much more than 101 (Jiecut post). That was before LFW proposed a ranked vote poll.

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Sorry jernejml. I probably should have just quoted you and done a separate post. This was a reply to the thread not to you specifically. I think I picked your post to reply to because I agreed the most with your post and your quote of @SebVentures on this topic in this sense that you replied to @SebVentures on

"would be happy to join the 105% or lower pack if someone (domain teams?) provides an analysis that liquidation (or in my case vault abandonment) is not a problem.

I also have added that with 13% liquidation fee any vault with LRs below 113% make no sense really.

At LR of 101% literally the only piece with a chance for a fee is the 1% on the 100% and that is provided a liquidation gets full value which I am pretty sure it won’t. Which is my biggest beef here.
I don’t have a good handle on what Liq 2.0 much less 1.1 will do on the DAI prices fetched for USDC in these vaults given tx fees, and spreads on liquidation. 1% doesn’t leave any room to make sure the system captures full DAI return much less any profit as a penalty for a vault liquidating. My concern here is the behavorial mechanics get broken as we get too close to 100% and that the system will generate deficits liquidating these abandoned vaults (particularly if one tries to apply fees).

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How about makerdao acts as keeper to these auctions so 100% is recaptured. That would work no?

With liquidations 2.0 it should be possible to only sell stablecoins at a fixed price of 1:1 in liquidations, if the dutch auction is set to start at 1 and not decrease, or decrease extremely slowly. This way, the USDC would only be bought in the auction once dai breaks below the peg, which is actually a great behaviour and would provide an outcome very similar to the PSM idea


I have a question for all those who voted 105%.

Would you change your vote if DAI were $1.06 for a few days? If yes - why (3% is as bad as 6%)? If no, do you have any other measure for bringing DAI down in the short term?


I would switch to 105 and no if the PEG was 1.06 I wouldn’t change my vote.

Also I have maintained when decentralized incentives won’t work to create more liquidity the protocol itself has to stand up and provide liquidity as a liquidity provider of last resort. Personally I would like to see a alogrithmic PSM where the facility usage determines the bid/ask prices offered and just use keepers to trigger auctions in the PSM bid/ask spread.

I have also advocated for creating a secondary surplus for multiple reasons. Using purchased assets to sell for DAI to mop up liquidity when times are good, and buying them when times are bad to inject DAI a valid use for liquidity but this secondary surplus probably wouldn’t have enough financial power as doing something like a dynamic PSM with a very heavy DC weight (say .5-1B).

I was interested in the MIP20 Vox idea mostly because it would finally break the 1:1 collateral backing to DAI which I thought was another straight up way to manage the PEG. Unfortunately it looks like the community considers 1:1 DAI backing MORE important than the PEG otherwise we would have tried something like that by now.

Let me add something here. Getting RWA on to the protocol might also do more for the PEG than anything else other than a .5-1B DC on a dynamic PSM facility or moving off the 1:1 DAI backing. Literally the PEG mechanics are correct the problem is we have a very strong exogenous driver skewing demandand still not enough DAI in markets to satisfy this. Also I don’t know if this was discussed but after the move in rates up - market PEG responded by going up from 1.015ish to 1.03 and looking to go higher (I am skeptical we hit 1.04 but we will see). 2.5% now to pay for a 2% yrly rate to close. really?.. It will be interesting to see if people think extending the 2% SF to ETH flies and what this does to the PEG.

BTW: After doing some reading on the crypto trilemma that one thing must give (scaling, decentralization, correctness) I am beginning to think there is a similar PEG trilemma (PEG, decentralization, 1:1 backing) where decentralization means the protocol NOT taking on the liquidity risk via direct intervention via a number of mechanisms proposed. The prime reason other PEGs work is because there is a redemption faucet somewhere for stablecoins. There is no such faucet available with DAI which I think is why @rune wanted desperately a PSM with 1:1 exchange rate. It makes sense if you think of wanting a DAI 1:1 USD redemption faucet somewhere to maintain the PEG.