Parameter Changes Proposal - PPG-OMC-001 - 1 June 2021

Primoz · June 1, 2021, 12:20pm

Parameter Proposal Group: MakerDAO Open Market Committee

Authors: @Primoz @LongForWisdom, @Monet-supply, @SebVentures, @Akiva, @hexonaut, @ultraschuppi

Source: Risk Premiums & Competitive Rates June 2021

Table Notes:

Risk premiums and Maximum debt ceilings are based on recent simulations available at https://simulation.blockanalitica.com/
Negative competitive rates are mostly due to liquidity mining rewards at Compound & Cream and due to rates and rewards accrued on deposited collateral
Lending products between secondary lenders and MakerDAO are not standardized and therefore rates can not be strictly compared.
DC-IAM ttl and gap changes are not included in this table, see proposed changes below

Lending Market Overview

DeFi lending rates are trending downwards for the second consecutive month and there is no reversal expected in the short term. Low rates are still maintained mostly by liquidity farming incentives. Additionally, potential rebalancing of investor portfolios into stablecoins and popularity of L2 lending have increased the supply of stablecoins on secondary lending platforms, pressuring rates lower.

Source: Calculations by Monetsupply

Similarly and as we have shown in the past month, rates on centralized venues have been also trending downward even before the recent price downturns. In the last week and after the two daily significant price drops, rates have only gone lower. At certain centralized venues perpetual funding rates even went negative, showing sentiment changed among traders.

Source: Binance ETHUSDT Perpetual Swap (7d rolling annual funding rate)

Another indicator of less bullish sentiment is increased supply of stablecoins as people rebalance their portfolios towards risk off allocation. Increase of PSM-USDC-A exposure is one indicator of this dynamic. Another is the increased supply of stablecoins after 19th of May.

Source: mkranalytics & coinmetrics

Proposed Changes

ETH-A:

Decrease SF from 5.5% to 3.5%
Increase gap from 80m to 100m
Decrease ttl from 12h to 8h

In order to lower USDC backing of DAI, maintain competitiveness and follow market rates lower, a decent cut to ETH-A rates is proposed. We are also increasing minting capacity which was too low on certain days in the past.

ETH-B:

Decrease SF from 10% to 9%
Increase line from 50m to 300m
Increase gap from 5m to 10m
Decrease ttl from 12h to 8h

Smaller rate cut is proposed for ETH-B since we believe this vault type is still one of the most appealing leverage ETH products in DeFi currently. At the same time we are increasing debt exposure capacity after witnessing good performance in the new liquidations system. Minting capacity is therefore also increased, but still a bit conservative due to OSM delay risks (potentially we can reduce ttl further).

ETH-C:

Decrease SF from 3% to 1%
Decrease ttlfrom 12h to 8h

Similarly as for ETH-A we are also proposing a bit more drastic cut for ETH-C vault type. We believe this vault type at 1% rate should be a nice boost to a much needed new DAI supply. Minting capacity is also increased, partially also to unify 8h DC-IAM parameters across all vault types.

WBTC-A

Decrease SF from 4.5% to 3.5%
Increase gap from 15m to 30m
Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity.

YFI-A

Decrease SF from 5.5% to 4.0%
Increase line from 90m to 130m
Increase gap from 5m to 7m
Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity. YFI-A vault owners demonstrated a very healthy unwinding process at price crashes which was incorporated into risk models, revealing lower risk premiums. Therefore a lower rate and higher line can be introduced despite the expected debt exposure growth.

LINK-A

Decrease SF from 5.0% to 4.0%
Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity.

UNI-A

Decrease SF from 3.0% to 2.0%
Increase gap from 3m to 5m
Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting capacity.

RENBTC-A

Decrease SF from 5.0% to 4.0%
Decrease ttlfrom 12h to 8h

General reduction in rates and improvement in minting DC-IAM minting capacity…

BAT-A

Decrease SF from 5.0% to 4.0%
Decrease ttl from 12h to 8h

General reduction in rates and improvement in minting DC-IAM minting capacity.

AAVE-A

Decrease SF from 3.0% to 2.0%
Decrease ttl from 12h to 8h

General reduction in rates and improvement in DC-IAM minting capacity.

MANA-A

Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity.

ZRX-A

Decrease line from 10m to 3m
Decrease gap from 1m to 0.5m
Decrease ttl from 12h to 8h

ZRX on-chain liquidity is still low and risk models are proposing lower debt exposure. For that reason DC-IAM minting capacity is also adjusted downward.

LRC-A

Decrease line from 5m to 3m
Decrease gap from 1m to 0.5m
Decrease ttl from 12h to 8h

LRC on-chain liquidity is still low and risk models are proposing lower debt exposure. For that reason DC-IAM minting capacity is also adjusted downward.

BAL-A

Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity.

COMP-A

Decrease line from 30m to 20m
Decrease ttl from 12h to 8h

Risk models are proposing a bit lower debt exposure, again due to lower on-chain liquidity.

KNC-A

Decrease ttl from 12h to 8h

Changes to DC-IAM minting capacity to unify parameters.