With the extreme market changes we have seen in the past week, we have decided now would be a good time to once again engage in discussion about shutting down Single Collateral Dai.
During today’s call, @Primoz presented information on the state of SCD here https://www.youtube.com/watch?v=v_OtobM_Mrg&feature=youtu.be&t=5193. In summary of his findings it became apparent that peg instability and liquidity issues were beginning to hinder the efficiency of the protocol. Liquidations were no longer taking place in an ideal fashion due to cost inefficiencies. This poses a great risk to PETH holders and the overall stability of the protocol. With this new information in mind, it seems prudent to begin advanced discussions on this topic.
Several months ago I began collecting signals on the direction community members would like to take in shutting down SCD.
A summary of the first polls can be found here:
While the latest conversation about introducing a tax to incentivize/penalize CDP users can be found here:
Since both of these threads are now a little out of date I think it best if we reset some of the conversations given the new market conditions we live in.
My goal in this thread will be to foster purposeful and meaningful discussion, and signalling, that moves us towards the end goal of SCD Shutdown. I encourage all community members to bring their ideas to the table in regards to how they would like to see this process play out and what they think are mitigating factors. Once some discussion has commenced we can begin to collect signalling on next steps.
Some questions to begin discussion:
- When should we enact ES?
- What parameters should we follow to trigger ES?
- Should we implement a tax on CDPs to recoup SCD fees? (see Signal Request/Discussion: Should we implement a tax during SCD Shutdown to recuperate unpaid Stability Fees?)
- Should we forgive SCD Fees?
- How do we find someone to clear out the migration contract before ES?
March 18th Edit
Now that some discussion has taken place, I would like to begin with a few basic polls.
When should we initiate SCD Shutdown?
- Less than 1 week from today
- Less than 1 month from today
- More than 1 month from today
Pros and Cons of initiating shutdown sooner rather than later
- Shutdown while price/liquidity are stable
- Less governance/risk overhead in the coming days/weeks/months
- CDPs may migrate to MCD and provide more Dai liquidity
- Not enough time to communicate to CDP users
- No more MKR fees burned
- Opens up more ETH onto the market, could cause downward pressure on ETH price
- Could be bad optically. CDPs that paid fees and migrated to MCD could feel short changed. CDPs that weren’t prepared to settle right now could be effected financially.
If you have more pros/cons let me know and I’ll add them to the list.
Should we forgive stability fees or try and extract fees in another way?
Thoughts on forgiving stability fees versus extracting fees
Technically we could calculate how much each remaining CDP owes in ETH and vote to manually extract that amount from each CDP. This however could look bad optically and would be time consuming for the Foundation. On the other hand, if we were looking to close later than the next few weeks we could signal to the community that a tax was being placed on remaining CDPs who did not choose to migrate and hopefully incentivize them to migrate willingly. All of the options to extract fees in order to incentivize CDP users to make a certain decision are much more time consuming than just forgiving the fees. Unless there is a more elegant solution that has not been brought forth yet.
Forgiving stability fees is the fastest and easiest option. Optics are mixed because remaining CDPs would be happy but I would assume most ecosystem users are using MCD now and may feel slighted at having to pay fees unlike remaining CDP users. The obvious negative to this option is losing out on additional fees in the form of MKR burn which would have helped offset our Black Thursday losses.
@Cyrus has brought up the point that before we initiate ES, we may need to find a willing party to absorb the migration contract. The reason this is necessary is because the migration contract is technically unbacked Dai and if there is Dai remaining in the contract at ES, it gets liquidated and at 4M Dai currently, there would be a lot of slippage. So in order to safely cancel out this contract, a helpful whale would need to mint Dai, migrate their Dai to Sai for the amount in the migration contract and then become settled in SCD.
March 26th Edit
Thank you to everyone for their input so far. Please go check out @Derek’s post about processes and next steps for SCD shutdown over here:
Now that the previous polls have concluded, we can move on to the final forum poll stage. With “Less than 1 month from today” winning by 64%, we can now narrow our options down to a week in April. With the winner of the following poll chosen to go on chain for MKR holders to ultimately decide. Therefore:
When should we initiate SCD Shutdown?
- Friday, April 10th, 2020
- Friday, April 17th, 2020
- Friday, April 24th, 2020
My plan is to leave this open until Sunday evening/Monday morning so as to move on chain for Monday’s governance polls. If we haven’t received enough votes by then I will keep it open longer. Please remember this is just a signal and non-binding. As we know, things move fast in this space and changes may be necessary. I look forward to seeing the results.
A note on fee forgiveness and clarity
Since the voting was close on the forgive/extract poll, I just wanted to quickly discuss these implications. When inevitably put on-chain, the governance poll may be struck down for a myriad of reasons (shutdown too soon, would rather extract fees, etc.). Therefore it may be necessary to revisit the results of these polls and put together a different package to entice MKR voters.
MKR holders ultimately have the final say and that is to be respected, regardless of outcome. It may even be necessary to redo the extract/forgive poll on-chain for full clarity as well as any other factors that may be uncertain.
Ultimately, I hope that these forum polls have helped guide us in the right direction to passing what the majority of community members voted for.