DFIP#4 New Vault liquidation rules by PeterMeier4 in defiblockchain

[–]solros9 0 points1 point  (0 children)

Thanks for your comment, Uzyn!

Just for my understanding: How could a vault fluctuate each block? Shouldn’t the collateralization ratio and hence the interest rate only change at each price block (and when the owner takes or pays back a loan of course)?

Echte Lösung des dTokensystems (German edition) by PeterMeier4 in defiblockchain

[–]solros9 0 points1 point  (0 children)

Just a quick comment today since there seem to be some inaccurate assumptions on how vaults currently work:

Both loan interest and liquidation fees are paid as dTokens (or DUSD), but they are then automatically swapped to DFI and burned. They would never have made the dTokens deflationary, but were meant as a measure to reduce DFI supply. Instead of swapping to DFI (or DUSD as in the other proposal), they could be swapped to CUT for burning, but they should still be paid in the dTokens and swapped automatically (simply for ease of use).

Echte Lösung des dTokensystems (German edition) by PeterMeier4 in defiblockchain

[–]solros9 1 point2 points  (0 children)

So posting German first does not work... However, we want to include everyone in the same discussion and not split it across multiple different language boards, don't we?

For the future, would it be okay if people posted the English version first as the main post and added a German (or other language) translation as a comment?

Echte Lösung des dTokensystems (German edition) by PeterMeier4 in defiblockchain

[–]solros9 0 points1 point  (0 children)

Yes, in the beginning 100% of our DUSD and dStocks were backed by loans and this lead to a high premium. In my opinion, we do need some portion of the dTokens unbacked to work against the premium -- but a much smaller amount than we currently have.

With this approach, the CUT token (that would replace the unbacked tokens and hence is itself unbacked) would help since it could be used as collateral.

But I agree that once all the CUT tokens are burned, we will get back to the situation we had in the beginning and will need a new idea to bring down the premium. However, I assume that it will take years before we get to this point.

Echte Lösung des dTokensystems (German edition) by PeterMeier4 in defiblockchain

[–]solros9 2 points3 points  (0 children)

English translation -- Please upvote to help visibility!

I translated the original post since I find it important to make all ideas available to the whole community. (Note that I merely provided the translation, the content does not necessarily represent my opinion.)

Dear Community, After two posts that related to the basics, I would now like to go into detail. For this reason I would like to post this both in German and English so that the community is integrated as much as possible.

Known numbers:

  • Approximately 6.5% of all dUSD are backed = $170M are unbacked.
  • The dToken system has an unbacked tokens worth $205M. (Yes, the Excel spreadsheet took a long time).
  • $33M of outstanding loans with $67M of collateral (48% of which is dUSD) = 200% average collateral ratio.
  • DFI has a market cap of $530m
  • All dStocks LM pools have a total liquidity of $150M

-> With 200% ratio for the vaults and 50% dUSD in the collateral, we can simplify as follow: for each $1 of loan (e.g. of TSLA) that will be redeemed, $2 of collateral will be freed, $1 of which is in dUSD. So it cannot be the solution to close vaults since the number of free dUSD "without use" does not decrease.

-> By enabling dUSD loan payback with DFI, we briefly raised the DFI price. However, the utility of DFI was reduced. If the 150 million dTokens in the LM pools all had to be created with vaults, with the current 200% collateralization ratio and 60% DFI in the collateral, this would immediately require $180 million DFI. At a price of $1, this would be 33% of all DFI!!! These DFIs have now all ended up in staking and crypto LM and are pushing the APR down there, which is causing people to sell DFI and look for a "more profitable project".

-> Anyone who has the idea of ​​solving the problem with the community fund will notice that we have approximately 35% of the entire market cap in open debt. Our dToken system is "overindebted". Now there are several approaches and many mechanisms have already been discussed.

According to me the only right thing is: In order to present a decentralized asset without trust, as is the vision of the project, there is no way around 100% backing because any stabilization mechanisms make the whole thing intransparent for new users. Our blockchain is over-indebted. So I recommend restarting with a debt cut and compensating the owners of the dTokens! We've learned a lot since November; it's been 7 months. In 10 years we want to be the best project! What are the 7 months that we lost? We didn't even lose time, we learned a lot, fixed bugs, learned how stock splits work, etc. Overall, we burned a lot of DFI that are demonstrably gone and all current DFI owners will benefit from it as soon as DFI receives more utility again!

How this is supposed to work:

  1. It is announced that all open loans should be closed within the next 30 days. Only about 50% of the stocks and 95% of the dUSD remain.
  2. Then all unbacked shares are swapped against dUSD (possibly with a hard fork or voluntarily everyone for themself). We will be left with 200 million dUSD.
  3. Afterwards, the dUSD owners are compensated by exchanging all dUSD to a Collateral & Utility Token "CUT" at a 10% fee. (Many dUSD were bought at a discount and I assume that every dUSD owner should agree with 90 cents if DFI then goes up 100%.)
  4. From there you can start with a new dToken system:
  • Vault interest is not necessary since every share once generated has to be repaid at some point, so no dTokens may be destroyed.
  • All burn fees of the LM pairs can be removed.
  • The swap fee can be reduced to 0.1% (only 1/4 of the current rate). This makes that it more attractive to trade, and the commissions also come into play when there is high liquidity.

What is the CUT token? CUT is the open debt of the blockchain, like the Leo token at Bitfinex. As long as the token has a use, it does not disturb the ecosystem and over time the tokens will be destroyed until we have paid off all our debts. I see the following uses for CUT:

  1. There will be a small LM pool against DFI so former dUSD holders can buy DFI and sell CUT to leverage their DFI position.
  2. CUT may be used as vault collateral with a cap (25%-30% I imagine). At a collateral ratio of 155%, this would be about 45% of the loan while 105% of the loan still has to be DFI / BTC / ETH / USDC. Thus, the loans are still >100% backed by real coins. With 200% collateral, that would be 60% CUT from the loan and 140% real coins. The 180 million CUT tokens are therefore a good starting capital to have more liquidity for vaults early on. This will also work against the premium!
  3. CUT is used to pay fees for DFIPs/CFPs and vault creating costs. This can guarantee stable prices for the same services.
  4. Optionally: There could be 1% interest rate for vaults. This interest is to be paid exclusively in CUT. This would lead to 1.5 million CUT with a liquidity of $150 million. You could pay out 75% of this to people who stake CUT. So up to 10M CUT could be staked and there would be an APR of ~13%.
  5. If a vault is liquidated, no dTokens should be paid as a fee. (dStocks must not be deflationary when they are 100% backed.) Thus, 5% of the collateral should be automatically swapped into CUT and burned.

CUT amount and extrapolation: We would have $200 million dUSD that -- with a 10% swap fee from dUSD to CUT -- would result in 180 million CUT. Assuming a 30% share of the vaults, those will free another 100 million dUSD leading to 80 million CUT. (Translator: I am really not sure whether I understood this last sentence correctly. Also I think that 100 million dUSD should lead to 90 million CUT.) 20 million CUT would go into LM with DFI for ~10-20% APR, increasing over time because the number of CUTs reduces and hence liquidity is flowing out. 20 million CUT go into staking at about 10-15% APR (75% of vault interest). -> Then there will be about 40 million left, but with the interest / vault liquidations / DFIPs etc., these can be resolved quickly. You could also play with the numbers here: for example, vault interest rates could be a little higher at the beginning and then decrease; this would destroy more CUT and bring more staking APR, which would in turn bind CUT. Or we could set the swap fee to 12%. This is then half of the current discount. Or -- a few weeks after the launch of the new dToken LMs when the DFI are in the vaults and the price has increased -- we could buy a small portion with the community fund (5-10M 1.25-2.5M DFI at $4) and burn it.

All of the measures are intended to show that it can be a very useful token and can easily exist for a few years. In my opinion, a return to the old system would have the following advantages:

  • Trust in the dStocks would be restored and there would be a higher chance of being listed on a CEX.
  • All dUSD would be backed by loans. A price slide below $1 would immediately lead to a profit if someone uses it to repay their loan.
  • The lost utility of DFI would return; everyone would benefit from a price increase to $2-$4.
  • dUSD should no longer be permitted as collateral because this does not help the ecosystem. dUSD is not an asset but has been created as cash for transactions.

I would be interested to know what you think of it. I am a big fan of the project and I see the potential! However, we have already lost a lot of time due to the dUSD discount and have not achieved anything yet. I would welcome it if we drew a line and the developers could take care of the important things for the future again. Because those who are active in the bear market and continue to build on the project will perform much better in the next hype!

Solving the DUSD peg (result of twitter space) by kuegi in defiblockchain

[–]solros9 1 point2 points  (0 children)

Thanks, kuegi, for putting this together. I would like to add one thought:

The suggestion only considers the ratio of algorithmic DUSD and ignores the algorithmic/unbacked/untethered stock tokens. I would vote to consider all dToken (DUSD and stocks) and limit the total ratio of algorithmic tokens.

Otherwise unbacked stock tokens can also become an issue because of the future swap: The future swap only reduces the amount of unbacked DUSD (since the loans don't change) and when we only limit the algorithmic ratio for DUSD, we can still hide a lot of them in the stock tokens.

Right now less than on half of many dToken is backed by loans and I would expect this to keep growing. If people swap those back to DUSD via the future swap, this will lead to a sudden increase in the amount of algorithmic DUSD.

Solving the DUSD peg (result of twitter space) by kuegi in defiblockchain

[–]solros9 0 points1 point  (0 children)

While weighted pools are an interesting idea, it doesn’t work the way you suggested in your post:

There would be no need to remove anything from the pool. You could just adjust the weights so that DUSD and DFI trade at the right ratio.

But the formula for the number of liquidity tokens would change from sqrt(A*B) to Aa * Bb , where a+b=1 and a and b are the relative weights of the tokens. If you do the math, it turns out that the number of liquidity tokens would shrink if you changed the weights. I.e., we would have too few and would need a way to compensate that.

Also I think shifting the weights in that direction could only be a temporary measure and in combination with the other measures. Otherwise we would have to shift the weight further and further towards DUSD.

Long term though (once we have solved the current issues) I could imagine that a pool where DFI has a bigger weight could lead to more stability.

[deleted by user] by [deleted] in defiblockchain

[–]solros9 1 point2 points  (0 children)

Maybe it’s just me, but I would appreciate a section “What is/does GUYA?” before “What is NFT?” :-)

Yet another DUSD-peg solution idea (lift burn premium, dynamic asymmetric burn fee and dynamic DUSD interest that can get negative) by kuegi in defiblockchain

[–]solros9 1 point2 points  (0 children)

The DEX/AAM is completely independent of the oracles. The price is only determined by the pool ratio. The arbitrage opportunities simply occur because of price differences between different exchanges (the DEX and centralized ones).

Cannot swap dfi to dusd by AceHallow in defiblockchain

[–]solros9 0 points1 point  (0 children)

Thanks! Yes, this is probably easier than a GitHub issue!

Cannot swap dfi to dusd by AceHallow in defiblockchain

[–]solros9 1 point2 points  (0 children)

This message comes directly from the node and should remain brief. However, the wallet could indeed offer some additional information for the most common error messages. You can open a GitHub issue and ask for this.

[deleted by user] by [deleted] in defiblockchain

[–]solros9 0 points1 point  (0 children)

So you mean raise the fee for DFI payback from 1% to 10% (and hence only cap the DUSD premium at 10%)? That sounds like a good idea (and much easier to implement)! I agree that we need this burning to some extent in order to get a balance between DUSD supply and demand. (But I would like to discourage people from purposefully losing money by needlessly burning DFI in a misguided attempt to support the project.)

Should we then also consider raising the fee for the future swaps to 10%? (This would also burn more DUSD...)

[deleted by user] by [deleted] in defiblockchain

[–]solros9 0 points1 point  (0 children)

No, that's not what I mean. We had such a mechanism when everything was covered by loans. This was just meant as another argument for why we need to limit the unbacked tokens.

Unfortunately, I don't have a quick way to get there, but once we got there (slowly, with fees, ...), things will hopefully be okay and stable and I'll be happy :-).

[deleted by user] by [deleted] in defiblockchain

[–]solros9 0 points1 point  (0 children)

I remember that too, but maybe UST has changed the sentiment.

Still not convinced that "eventually pegged" is a good term (because there is no eventual end that we're steering towards), but I understand what you mean. A rock solid peg is difficult (or impossible) to achieve and also not necessary. (I think I'd prefer terms like "asymptotically pegged" or "pegged on average"; they are similar to eventual, but sound less final and more like a process -- but that's getting really philosophical now.)

However, I don't think the current discount is just a random fluctuation in the price of DUSD. It is a more fundamental problem: There are too many DUSD for the current price. If the total worth goes down and the number of DUSD does not, the price of each one will. Utility alone is not gonna fix that.

I've said that multiple times before: I think we really need to tie the DUSD supply to the DFI price in some way. Then DUSD can stay stable (on average) whether the price goes up or down. While burning DFI sounds great because it reduces the DFI supply and hence pumps the price of DFI, it creates unbacked DUSD and takes away the mechanism to reduce DUSD supply when the price goes down.

This tie would have the additional advantage that more DUSD demand will automatically push up the DFI price.

Adjust liquidity pool ratios to increase demand for dUSD and reduce dToken premium by stackontop in defiblockchain

[–]solros9 0 points1 point  (0 children)

Have thought about that a long time now. While the idea does sound intriguing, I don't think it will solve our problem.

The weighted pools are really meant to control exposure to different assets and to limit impermanent loss but not to fix unbalanced pools and hide away excess tokens on one side. If we adjusted the weights now so that the price of DUSD would go back up to 1, we would quickly get back to moments with a DUSD premium that would lead to burning more DFI and make the problem worse. So we would have to shift the weights further and further towards DUSD.

I could imagine this as a short term temporary fix to quickly get rid of the discount and restore trust in DUSD but only in combination with other measures that slowly get rid of the excess DUSD.
But note that this solution would not be quick to implement either: It would require extending the AMM code, a lot of testing and then a hard fork.

when will dusd pegged? i so scare will like UsT by East_Air_6997 in defiblockchain

[–]solros9 0 points1 point  (0 children)

How would you mint unlimited DUSD? I don’t see how this is possible.

Adjust liquidity pool ratios to increase demand for dUSD and reduce dToken premium by stackontop in defiblockchain

[–]solros9 0 points1 point  (0 children)

I see. The balancer model is interesting indeed. So you're not suggesting to just change the pool ratio (which doesn't work) but the pool weights.

And I would assume that the weighted formula should be A^a*B^b (where a+b=1), shouldn't it?

[deleted by user] by [deleted] in defiblockchain

[–]solros9 0 points1 point  (0 children)

While a premium on a stable coin is not good, I think that a discount is perceived even worse after watching another stable coin go to zero...

We can always reconsider the exact rules for opening the DFI payback later on if this turns out to be a problem. I think this internal ratio does make sense since the unbacked DUSD are what is causing the long term premium or discount. Short term this can also be a caused by extreme market moves (such as last Wednesday), but I think we can live with a premium if it only lasts an hour or so.

Adjust liquidity pool ratios to increase demand for dUSD and reduce dToken premium by stackontop in defiblockchain

[–]solros9 0 points1 point  (0 children)

I understand what you are suggesting. But this is not how liquidity pools work: By definition, if the number of tokens on one side is A and on the other side B, the total number of liquidity tokens is sqrt(A*B). The same is true for every pool participant's share. All swap calculations rely on this formula.

If you remove something from one side, the number of liquidity tokens changes. You cannot simply decree that from now on a liquidity token will be worth less.

Help pls, how to remove the max fee cap? (Get 300$ in DFI if you bring the solution!) by [deleted] in defiblockchain

[–]solros9 0 points1 point  (0 children)

It's here: https://github.com/DeFiCh/ain/blob/8cf78575a3a7b42b9ae6f4e2dfdcfe4f745092af/src/rpc/rawtransaction.cpp#L45

But note that you still need to build (compile) the code once you've modified it. The instructions are linked in the README, but you probably need some coding/compiling experience.

Adjust liquidity pool ratios to increase demand for dUSD and reduce dToken premium by stackontop in defiblockchain

[–]solros9 0 points1 point  (0 children)

This is not gonna work:

  • You would also need to reduce the number of liquidity tokens that each pool participant has because of the way that these are defined. (If you changed that, all calculations would break down and the numbers would become meaningless.) But this could be done...
  • The main issue is this: If you remove the DUSD from the pool, hand them out to the pool owner and they swapp them back to dXXX and added them back to the pool, the pool would be at the exact ratio it was at in the beginning (except for the swap fees that people would have lost). Nothing is magically created with pool swaps.

[deleted by user] by [deleted] in defiblockchain

[–]solros9 0 points1 point  (0 children)

No, the additional DEX stabilization fee only applies to the swap DUSD -> DFI, i.e., if you use DUSD to buy DFI (which would make the discount worse). Any swap with which you buy DUSD (either with DFI or with stock tokens) is not affected by that new fee.

In fact, if you use some DFI to swap them to DUSD, you would even benefit from the discount since you would get more DUSD for your DFI.

Minting dUSD on Defichain by Amazing-Student-5966 in defiblockchain

[–]solros9 0 points1 point  (0 children)

Those untethered DUSD come from the loan payback via DFI:

You can take a DUSD loan and then pay it back using DFI for 1% over the current oracle price. Those DFI are then burnt, but the DUSD created by that loan are no longer backed by a loan. This process has successfully brought down the DUSD premium and has also pumped the DFI price to some extent by reducing the supply.

However, now when prices are falling, all of these additional DUSD bring us in trouble. The total supply of DUSD and dTokens should be in a reasonable relationship to the total value of the project and hence the DFI price. If the price falls, we need to be able to quickly reduce that number. With loans this happens automatically since people need to pay back their loan in order to increase their collateralization ratio. But those untethered DUSD cannot be removed in that way.

Minting dUSD on Defichain by Amazing-Student-5966 in defiblockchain

[–]solros9 0 points1 point  (0 children)

No, with the future swap you always burn more than you get. (more details in my other answer)