[Signal Requst] Adjust UNIV2DAIETH-A Debt Ceiling

The stability fee should be set to zero. DAI is above the peg. The only thing that keeps the DAI price from taking off are the risky (because of the regulations and centralization) stablecoins which also have 0 SF.

So I’m basing the USDC-ETH and WBTC-ETH as next on the fact that the community proposed them, they are very high on the Collateral Onboarding Prioritization Document, and the Domain Teams have already submitted the Oracle, Smart-Contract, and Risk Collateral Onboarding Assessments for them. The community already voted in USDC-ETH so all thats left is to put it in an Executive Vote. WBTC-ETH would still require a final Polling Vote. Notably these 2 pairs are also some of the highest liquidity Uniswap pairs which means they have the most demand.

I think promoting DAI liquidity is an interesting secondary benefit of the DAI based pairs. However, I think we still have to prove whether we can create demand for non-liquid LP pairs just by virtue of us adding them as collateral or whether we’re subservient to which pairs there is currently LP demand for. Until we confirm the former and can leverage it to bootstrap new DAI LP pairs, our resources are probably better spent taking the conservative approach and adopting LP pairs with existing demand.

Looking at the list of MIP6s, I see we already have applications for DAI-WBTC and DAI-YFI. Looking at which pairs actually have liquidity on Uniswap instead, I see DAI-USDC at 20M and DAI-USDT at 5M. There’s also some BAC and BAS based pairs with significant liquidity but those are highly risky to have exposure to. I think if someone submitted MIP6s for DAI-USDC and DAI-USDT those might be good pairs to target after WBTC-ETH and USDC-ETH.

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First, it’s great to see strong product market fit. However, I wanted to briefly mention here what my concerns are:

  • We need audits (possibly three) of the new oracle code.
  • We have not seen how liquidations happen yet. Pricing LP tokens and recycling capital is more complicated for keepers. It’s likely that we need to ensure they are tooled up first. I recommend reaching out to keepers in rocket chat.

Whatever approach we take, it should likely be a slow DC increase and other LP types as we get those audits and see how performant auctions are. I would not personally feel comfortable with 12 million unless we could see a number of auction participants and have at least one audit.

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We have at least one FLIP auction for a UNIV2DAIETH-A vault which took place (following https://daistats.com/#/)

I guess this is not enough info, but we could try to see from these auctions (and hopefully others to come) how everything worked (and how the auction was triggered and so on). @cmooney how many of these auctions would you recommend as “enough” for ensuring that the oracle and auctions for this type of collateral is performing fine?

Following what I’ve seen from the comments of the Smart Contract Team and Oracle Team members, an audit is completely necessary before taking any action, hopefully we could take that step as soon as January starts.

Who would be in charge of contacting an audit company? If we’ll pay with DAI from the surplus (or future “operational funds”, the process probably will be more fluent with a company who already did an audit with that payment process (like Quantstamp who audited the PSM), not sure if Dapphub have made audits in this way before as well.

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The fact that ETH/DAI provides dai liquidity and has no custodial risk makes it a completely different beast compared to other LP tokens. It doesn’t just provide income, it provides a benefit to the whole ecosystem that helps with long term growth, and scaling it up enough will potentially make dai the dominant stablecoin for trading ETH, with USDC users going through the PSM and then dai.

IMO with the real world testing of the current 3 million debt ceiling we should be comfortable enough to raise it more, and I voted for 12 million. However, it will only be safe to do so if we immediately work to get more eyes on it in parallel to raising it, including a community paid audit like the one for the PSM.

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I think given it’s an Oracle the Oracle Domain Team can start reaching out to a few audit firms. I agree that a firm that accepts Dai as payment would be easiest. Then I can file a MIP14 that the community can review and vote on for funding the audit.

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Definitely support dai-usdc (could even be used as part of a strategy in yearn), don’t support dai-usdt, don’t feel comfortable having custody of an assets that’s ongoing inquires in the states, even if it’s part of a uni pool

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I’m going off of the position we want to be in once audits have cleared (and potential problems have been fixed) and we can raise debt ceilings. The biggest potential Dai supply and stability fees. Other lending protocols will surely follow once they see there is product-market fit for LP tokens. If we don’t fill the demand for the highest liquidity pairs they will. Though I can’t prove it empirically I believe “stickiness” is real and there’s significant value in being first. I agree Dai based pairs are less risky, and come with the benefit of increasing Dai liquidity. I just value creating a moat around the highest liquidity LP pairs more. All that said, it’s not up to me, Maker Governance will ultimately decide :slightly_smiling_face:

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Well, I know that AAVE tried to do something similar when they created the Uniswap market back in May.

but for some reason they removed it from the UI and I’ve not listen that much about it afterward (probably because they did it with Uniswap-v1 tokens). More likely they’re in the making of Uniswap Market for Uniswap-v2 tokens.

From a competition point of view, we definitely should progress more in our integration with LP tokens as well, so that we could get a share of that market (the sooner the better)

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Alpha Homora is doing that as well but lending ETH (which is expensive > 8%). They have $83M of loans.

They have a slick interface but that gives us the size of what we can expect. I’m quite sure the market to be long ETH is bigger than the market to be neutral/short ETH.

I like the idea to support DAI related pairs with low SF and make non-DAI related pairs more expensive (but still the best solution on the market).

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Just want to confirm that I’d love to see this happen. While MIP14 was not designed to be used permanently for repeated expenses, one of the main drivers was that so we would have some process for funding things, even if it isn’t optimal. It makes sense to use it for audits like this.

If a community member wants something useful and awesome to do, someone might consider creating a MIP that is more specialized for organising and funding audits using protocol funds.

Such a specialized MIP could implement processes like:

  • A lower RFC / Frozen Period
  • Escrow audit payments to a mandated actor and/or multi-sig so that an audit firm does not need to perform work without the guaranteed of being paid.
  • Audit specific record keeping. (What was code was audited, who wrote the code, who did the audit, what the outcome of the audit was, overall satisfaction with the audit from relevant mandated actors, etc.)
  • Directly assigning a pool of funds pre-authorized for use in audits controlled by mandated actors (either in a multi-sig or funds that can go ‘straight-to-executive.’)
  • Other things that I didn’t think of (if you are interested in doing this, please think about how to make auditing and funding auditing a smooth process for all involved.)
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Given the defined next steps and that the Oracle team does not support an increase, this signal will not proceed further at this time.

Instead, the mandated actors will be onboarding ETH-USDC LP and WBTC-ETH LP (given the vote ends successfully) based on the outcomes from the recent votes. Until an audit can be completed or further time-without-incident increases confidence in the uniswap LP oracle implementation, the debt ceiling on these LP’s will remain at 3M.

Edit: I actually jumped the gun by a day here, apologies all. I don’t think it makes a huge difference given @Oracles-Core-Unit input though.

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Quick update from my end.

As I stated earlier, the issue here is the amount of exposure (risk) we have to the Uniswap LP Oracle. The Oracle Domain Team’s confidence in that code has grown since releasing the DAI-ETH LP Oracle before the holidays. Meaning there is room to gradually increase exposure to the Uniswap LP Oracle. However, until we have an audit we should refrain from making any massive debt ceiling increases. So I’m proposing a compromise here. The community wants to see the debt ceiling for UNIV2DAIETH-A raised. Instead I think we should onboard UNIV2USDCETH-A and UNIV2WBTCETH-A with 3M debt ceilings. This gives us an increase in exposure that we’re comfortable with, while better positioning us for the future when we can really crank the dial on LP debt ceilings. The Oracle Domain Team is currently in communication with auditors, we’ll give the community an update once we have finalized the details.

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For what it’s worth, it was pretty exciting to see my UNIV2DAIETH tokens reflected at the “accurate” price in the Oasis Wallet snapshot (compared to Uniswap’s liquidity oracle) when I logged on to check my other vaults. Definitely support getting the proper audits to confirm before we dial up risk, but as someone who was worried about accurate LP token pricing when this vault was first suggested, it really boosted my confidence to see the value equal to Uniswap’s valuation.

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I believe Aave V2 is finally moving forward with Uniswap V2 LP token support: https://governance.aave.com/t/limitations-of-a-market-for-uni-v2-collateral-be-created/545

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@NikKunkel, any updates since you last posted on this thread? Thanks!

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Audits are underway. We’ve slowly been increasing exposure to the LP Oracle contract through adding more LP tokens. I don’t recommend the community raise the DAI-ETH debt ceiling until the audits given the green light.

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Any update on this? The debt ceilings have been maxed out for ETH/DAI and ETH/USDC for awhile now.

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@NikKunkel opened a SR for increasing the DC for UniV2DaiEth (and other) LP-tokens - please chime in to make this happen :rocket:

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