With SCD we have successfully kept the peg depending only on changing the SF.
This success in keeping the peg has a side effect (too high SF which is slowing the growth of DAI supply). That’s why we need the DSR. Its real role is to fix the problem of the slowing growth of DAI supply.
DSR fixes this problem by encouraging holding DAI which in return cause needing lower ST to keep the peg. Lower SF encourages minting more DAI and that’s the real goal of using DSR.
So what is DSR % should be? (1%, 2%, 5%, or 10%)?
The answer depends on the targeted total supply of DAI we are trying to achieve.
Of course, we want the DAI supply to be as high as safely possible.
the limiting factor in achieving high DAI supply is having enough collaterals to grow the DAI supply.
with MCD we will have Eth and few low market caps ERC20 tokens
if we assumed 5% of the total market cap of these collaterals as the upper safe limit.
we will have 1.2 billion dollars as maximum available collateral with the 300% collateral ratio we will end up with 400 million maximum Dai supply we can safely achieve with the currently available collaterals.
of course, the DAI supply should be the lower than the upper safe limit.
If we considered the range of 50% to 75% of the upper limit as a healthy target, we will end up with 200 to 300 million DAI as the targeted DAI supply for few months or even a few years until we could secure better and larger collaterals.
so DSR should be changed accordingly if the DAI supply is below the targeted range then we should increase the DSR to increase DAI supply to reach the targeted supply. on the other hand, if we have exceeded the targeted range we should lower DSR to decrease DAI supply.
what I wanted to say is that it is a mistake to change the DSR as a response to losing the peg (this should be kept as the SF job). DSR should be changed only to control the DAI supply.
imagine this scenario! the DAI supply is 350m (which is too high) and the DAI lost its peg lower 1$.
what should we do in this scenario? if we increase the DSR to restore the peg we will push the DAI supply to higher and riskier levels. on the other hand, if we decreased the DSR to lower the DAI supply we will worsen the peg issue.
this is why we should separate the tools. so that the peg is kept by SF and the DAI supply by DSR.