Hello again everyone. So it looks like the uptake on USDC as collateral has been very strong, so strong in fact that @cyrus is worried that we will not have enough liquidity available for auctions.
This issue was touched upon in today’s governance and risk meeting, but to lay it out simply:
The main goal of onboarding USDC as collateral was to provide keepers access to liquidity for the coming FLOP auctions (as well as any unexpected FLIP auctions.)
Apparently (and unfortunately, sort of) much of the debt ceiling is being used by people arbitraging the Dai peg rather than keepers stocking up for auctions.
Given this is the case, we have a few options that I can see:
1. Increase the stability fee on the USDC-A collateral package to discourage peg arbitrage.
Pro: Allow the remainder of the debt ceiling space to be used by keepers for auctions, and may cause peg arbitrageurs to close their positions.
Con: Will probably annoy those users that have been using USDC-A to arbitrage the peg.
2. Increase the debt ceiling on the USDC-A collateral package to allow more room for keepers to create Dai liquidity during the auctions.
Pro: Provides more liquidity for auctions.
Con: May still get eaten up by peg arbitrageurs.
Con: We add more blacklist and regulatory risk to the system.
3. Add an additional USDC collateral package (USDC-B) with a higher Stability fee that should only be used by keepers due to the prohibitive cost over periods longer than six hours. Optionally, also reduce the debt ceiling on USDC-A.
Pro: Provides more liquidity for auctions which cannot be used by peg arbitrageurs.
Con: We add more blacklist and regulatory risk to the system. Unless we also lower the ceiling on USDC-A by an amount equal to the new debt ceiling on USDC-B.