I’m quite fond of this idea
except, I would first try 85% CR
the range we were doing well with for months
till we increased it to 89% now and completely killed our price of fxs
80% might be a bit to much right away
even tho the risk ain’t high as we at the moment with 89% CR are 100% pegged due to the curve pool
so 85% should be fine as well
hopefully we can get this up for voting soon
I do not think there are going to be many borrowers when there is a potential exit-tax of up to 20%, even at an initial 0% interest rate.
The exit tax would also make borrowers reluctant in paying back their loan, making it harder to recall all the lend FRAX. Only after a significant unpeg (say FRAX = $0.80) if would be profitable for borrowers to pay back the loan. This means we can not prevent an unpeg, because we can only recall the lend FRAX after that has already happened.
Lending a significant amount via your proposed method will endanger the peg and thereby the protocol, so overall a bad idea.
20% (or 100% of the excess collateral) it’s mostly an arbitrary hyperbole and it’s useful to keep the math simple for the sake of understanding the basic concepts while thinking through the absolute worst case scenario we were discussing above.
The assumption was that, at the exact moment OCR < UCR, the protocol would raise interest rates to max lvl to immediately force repayment and collect all the excess supply of collateral in the money market, simple.
Immediately maxing out IRs to extract 100% of the excess collateral would immediately cover all seniorage’s liabilities.
In real terms though, it’s merely a matter of protocol’s (and governance’s?) preference how high the IR’s hikes should go during contraction.
You think that maxing out IRs exactly when OCR<UCR it is too much? fine.
How dovish do you want to be?
What is the maximum extractable value from that 100% of excess collateral from which you want to draw? You can go as low as you want as long as IR’s pick up accordingly to demand drop.
You can define that in the worst case scenario you’d wish to extract just 50%, or maybe 30% of the total excess collateral in the money market, for instance.
That would reflect in the severity of the IR hikes and, obviously in the size of the amount of seniorage’s liabilities you’d be able to back with it, proportionally.
(To pick up our previous example, say you’d want to collect just 10$ of those 20$ tot, well then, you know that you shouldn’t allow seniorage to get under 10$ in liabilities, it’s the same thing. 
)
Ultimately, the “exit tax”, in ragards to the excess collateral in the money market, can be set as high or as low as the protocol wishes to.
When demand for FRAX drops we would hike IR to contract the supply, creating buy pressure to close CDPs, like every other Money Market does really.
Litterally a longs (Seniorage) vs shorts (Borrowers) game.
bump for rediscussion + voting
(it seems this proposal simply got forgotton about)
Interesting to see we are over 92% now.
I’ve been silent for a while because I’ve been actively working on the logics of an economic model to:
a) get full collateralization (100% collateral backing) for a decentralized stablecoin that runs both a money market and a seniorage process. (Fraxfinance and MakerDAO with its PSM both fit.)
b) Achieve capital efficiency through the probabilistic definition of the extractable credit from a money market
c) automate the monetary policy to minimize governance and attack surface.
It’s here, if anyone wants to see it and give it a read:
Right now I’m collaborating with a CTO to run the first simulations and then define an unambiguous mathematical model.
Nice! So is this whitepaper a proposed stablecoin you’ve been planning? How have your first simulations gone?
We are currently querying the data from MakerDAO to look at the rate of change in the ‘ink’ and ‘art’ of any ‘urn’ (locked collateral and normalized debt for every Valut/CDP) during significant price swings and worst case fud/bankrun conditions.
We will then compare it with some other Money market where the IRs change algorithmically to prove the point that, as I suspect, the IR policy doesn’t influence user decisions as much as price action.
We will design the IR policy accordingly and utilize JPEG’d style of liquidations (not reimbursing) to offset the price volatility risk.
Then we define ePOC (exercisable protocol over-collateralization) as the probabilistically collectable Credit from the Money Market (2 standard deviations from the mean) and we take that data as the Debt ceiling for the seigniorage.
With the present and past IR payments, the treasury is going to build up a “Recollateralization Reserve” for the purpose of:
That’s the general idea, I put this out here because:
a) If anybody likes this and want to elaborate on it, I’m 100% open.
b) Any help/ collaboration is really valuable (else, yes I plan to keep working on this with my own resources).
c) At the end of the day what I really care about is to see the Decentralized Stablecoin space become anti-fragile and respond to the upcoming monetary crisis with technology that effectively solves fundamental problems for people.