-ve DSR vs centralized stable coins as collaterals!

I think that we have a serious problem with the possibility of losing the peg if we can’t scale the magnitude of available collaterals soon enough.

the Dai adoption has been growing in the last few months and it will likely to continue to grow and so should the Dai supply. since we are still working with Ether as the only available collateral. This means we have a limit to which we can grow the Dai supply securely. I mean we can’t expect to have 20% or 30% of Ether supply locked in cpd (this will be very dangerous if we have a significant decrease in the Ether value) that’s why I think that probably 5% is the maximum supply of Ether that can be safely used in cpd.

5% with current prices of Ether will allow us to generate 400m Dai, so this means that currently with SCD 400m Dai is the upper limit. If the adoption and usage of Dai would grow to more than 400m in the coming months (before implementing MCD), we would lose the peg and there is no think we can do except shutting down the system (Global settlement).

Now it seems that there is a small possibility that the Dai supply will grow to more than 400 million in the coming months before MCD, so we will be ok in the next few months (probably).

after implementing MCD we will have two problematic scenarios:

the first problem that we can’t scale soon enough: I mean ERC-20 tokens (which can be used easily with MCD) have a total market cap of 4% to 5% of Ethereum market cap… so it is almost nothing!

Building a secured non-custodial bridge between Ethereum and Bitcoin looks like a very difficult task to do… which can delay the usage of bitcoins as collateral for years!

I can’t imagine how the system will survive with only 400m Dai as a maximum limit for years especially with the growing usage of stable coins!

The second problem is the immature usage of DSR: today we have about 4 billion dollars of centralized stable coins. even if we offer Dai with very low DSR for example 1% to 2% this could increase the adoption and demand for Dai largely and we will very easily hit the 400m ceiling. we could see fast shifting from the increasing 4 billion supply of centralized stable coins into Dai.

so I think we have two options to prevent us from losing the peg due to slow scalability solution.

first, -ve DSR : which I just don’t like it although it could be better than shutting down the system.

second, using a basket of centralized stable coins like Tether, Libra and Usdc… with stability fees of zero and only 100% collateral. this will provide us with a good scalable source of collaterals until we can solve the technical problems and build the infrastructure that will allow us to scale with Bitcoin, security tokens or other significant assets which can be used in the future

I know that a basket of centralized stable coins is not an ideal solution but it is probably better than losing the peg and shutting down the system.

As far as I’m aware the risk team is nowhere near confident enough in coins with counter-party risk as collateral.

What will likely happen is that the DSR will be kept low to avoid mass adoption before we have the collateral to back it.

As seen on dYdX, there is presently the market possibility for a positive DSR…(as the interest rate offered there is 15+%… )…

that said I do take your point… it will come down to what levels we set the RP…

however, in the above you make reference to a 400mm ceiling… to my understanding there will not be a ceiling on DAI nor DAI in the DSR… there will only be ceilings on the individual collateral packages that can mint DAI…

SO… if the DSR has a positive yield, it will instantly attract participants… the question is how much and to what degree… we want DAI in the hands of as many people and locked in the DSR as possible. We need that do pull down the yield. (think of the US Savings bonds as a corollary)

I am suggesting using central stable coins in cpd as the last tool after we exhausted all other options to buy us time to find and build the infrastructures needed to scale the possible collaterals.
I am suggesting using stable coins only when we reach the point where we have 2 options: either Global settlement or adding centralized stable coin as collateral to buy us time.

I didn’t mean an actual ceiling but economic and risk ceiling.

It will become increasingly dangerous if we locked more than 5% of Ether supply in cpd, so it should promote us to increase the RP on Ether to decrease the locked supply to a safer level.

as I remember Vitalik was worried when we reached 2% of Ether locked in cpd… imagine the risks with 10% or 20% of Ether locked in Maker.

excellent point… 100% on the same page… any time there is a material % of a token that is used as collateral, you introduce systemic risk.

so other tokens… or ideally off chain assets.