Source
r/MakerDAO•
MusaTheRedGuard

We've been here before.

Remember 2019?

The 2019 mini bull run had started, and there were very few incentives to hold DAI.

So DAI went off peg and started trading between 0.96 and 0.98.

In response, MKR holders made an extremely unpopular decision(at the time) and raised stability fee all the way to 20.5% from less than 1% a few months earlier.

Of course, many in the community were upset and some lost faith in the system(i'm not insulting the people who made these posts, this was consensus at the time):

https://old.reddit.com/r/MakerDAO/comments/b757lw/peg_off_to_96_again/

https://old.reddit.com/r/MakerDAO/comments/bbq3ra/why_erode_the_maker_narrative_unnecessarily/

https://old.reddit.com/r/ethtrader/comments/bczwf4/daily_general_discussion_april_14_2019/ekwohzm/

https://old.reddit.com/r/ethtrader/comments/bb4e3h/daily_general_discussion_april_9_2019/ekj2qri/

But it's important to remember, the measures taken by MKR holders worked.

Over time, CDP owners closed their positions, DAI supply reduced and the peg was restored.

We are once again in a similar situation. MKR holders have made and will have to make hard unpopular decisions going forward.

But let's not forget that we've been here before and like before, i'm confident that we'll solve the challenges ahead

Posted Apr 12, 2020, 6:43 PM UTC

4915
LongForWisdom•

I'm also confident the measures will work given time. Dai locked in the DSR has been dropping significantly over the past week which is a great sign.

That said, it's worth noting that the mechanisms to push the price down are not symmetrical with the mechanisms to push the price up, namely the difference is that there is a lower limit (IE zero) on the SF and DSR values whereas there is no upper limit.

Imo this means a few things:

  • Restoring the peg will take longer this time. The Dai needs to filter out of the DSR, and in general, Dai Holders are less likely to be paying constant attention than Vault Holders.
  • We are somewhat at the mercy of the demand for leverage on ETH (this was true last time, but is more true this time.)
  • We need more collateral types as soon as possible (these should be coming in the next few months.)
14
MusaTheRedGuardOP•

namely the difference is that there is a lower limit (IE zero) on the SF and DSR values whereas there is no upper limit.

Yep, agreed, important distinction to make. Negative rates could have helped here, but i believe that they're relatively easy to avoid under the current DSR implementation.

What collateral types do you think could be useful here? A product with an inverse relationship to ETH price could be interesting(like a short ETH token or a put option)

6
LongForWisdom•

Not sure. I've recent come around to the idea of the ETH-DAI uniswap liquidity token. There are a number of properties that make it desirable.

  • It incentivizes the ETH-DAI pool on uniswap.
  • It is desirable to hold primarily when the market is trading sideways rather than upwards.
  • So far as I know, no other service allows use of them as collateral. So there is a pool of untapped capital that is available.
4
MusaTheRedGuardOP•

Hmm, interesting, I really like the idea of using CDPs/Vaults to lever up in different directions.

Currently Vaults are long-only, so falling ETH price reduces DAI supply, when we need it the most.

I can even imagine Vaults as a sort of general purpose leverage system, where participants can deposit collateral and get leverage in any direction, short, long etc.

Guessing the hard part is pricing the ETH-DAI uniswap pool token, and building a robust market for it...super interesting

3
[deleted]•

[deleted]

1
Sweddy•

A product with an inverse relationship to ETH price could be interesting(like a short ETH token or a put option)

isn't this basically just a default swap?

2
Spartan3123•

Negative rates is theft if it's possible I would never use DAI. Why should I lose money or be forced to sell DAI this is completely stupid.

1
going_up_stream•

While that decision was unpopular it made sence. The price was below peg so supply was lowered. However now the price is above peg and supply is being lowered by increasing the stability fee. Shouldn't that increase the price?

8
MusaTheRedGuardOP•

Yeah, I agree, I'm not in favor of the current SF hike

3
Sweddy•

~Negative interest ratesssss

1
going_up_stream•

Wouldn't that create dai that isn't backed by eth?

3
Sweddy•

this is where I say "but idk tho"

4
justdweezil•

This isn't an endorsement of negative interest rates, but one could put that extra Dai in the surplus pool for use in flap auctions.

1
basubadelmevt•

I agree things are gonna work out in the long term. But, quoting my not-so-favorite economist Keynes, in the long run we are all dead.

So, even though I appreciate the calming sentiment, the situation is a perfect opportunity for discussing ways of restoring peg faster in volatile times. That's where we should focus our conversations and energy.

7
lazyj2020•

The only MKR holders who can fix this are the Maker Foundation and the VCs who do what the Foundation tells them.

The rest of the community will debate back and forth til they forget about it and then the next trend reversal saves the peg...rinse repeat.

1
[deleted]•

[deleted]

2