Thanks for your insightful comments:
- The very spirit of deferring to bond market indices at fixed weights is to minimize risk-analysis and governance input, as they are trailing indicators and instead bows down to the incredible pricing-in ability of the bond market instead of needing to pre-empt market conditions like the Federal Reserve. I strongly believe any benchmark that may be adopted should be based on market signals, capable of high automation, and inevitably be trailing the markets.
In conjunction with SebVentures’ point regarding SOFR, this has actually been discussed with @arcology. Although it is true Fuse exhibit some elements of the repo market, the underlying is not zero-risk treasuries (at least assigned as so by the wider bond market). SOFR (and its predecessor LIBOR) has historically been pinned at near zero for extended amounts of time regardless of borrowing rates available to retail customers or even large entities. The ultimate underlying asset of the wider crypto complex (ETH), exhibit far greater volatility cf. to Treasuries. In the context of TradFI, FEI and even DAI can be viewed as secured ETH derivatives, and exhibits greater similarities to Mortgage Backed Securities. For these reasons SOFR/LIBOR and even Prime Lending Rate was struck out from the first draft of the basket.
To @SebVenture’s second point, target rate controls are inevitably complex. Though ultimately, the spirit of this proposal is that Defi financing will inevitably merge with the wider borrowing market as market actors engage in carry trades between Defi and Traditional financing sources. In that process, Defi rates would become subordinate to external TradFi monetary realities. due to the much greater market volume of the TradFi credit market.
In recognition of that eventual possibility, the measures proposed here are highly deferential to TradFI price signals. The Idea is to try to homogenize Defi Loans in the context of the bond market, and try to match what an analogous loan might be priced at in the bond market.
-
I fully agree that rate subsidies should be paused or abandoned if the protocol run into difficulties such as if collateral ratio dips low. Though with how the benchmark is composed right now, or may be composed, there are possibilities that the target rate may rise above the general Defi Financing rate and it naturally ceases to be an interest rate subsidy program.
-
Thats a very good point and we should explore whether Turbo itself would benefit from having a guidance interest rate. At current market volumes and time scales it is not an concern, but in the future USD inflation and arbitrage can pose a threat to protocol equity via funds borrowed freely on Turbo.
-
I would love to hear more about that, as this idea does not truly include proposals for execution yet. It is meant to provide a starting point and a train of thought for a fairly old discussion.
-
This is also mentioned by SebVentures, and has been discussed on and off for several months by now. TRIBE rewards are clearly inflating borrowing APRs especially on AAVE. Though as currently structured, TRIBE rewards are set to diminish and in theory taper to zero one day.
I should clarify my position further that I believe incentivizing the “deposit” side (which is the current state of affairs in FeiRari pool) is inferior in the long run to subsidizing borrowers. Users being incentivized to borrow more FEI creates future demand for the stablecoin. This especially true for FeiRari pool, as it is one of the only places where one can use TRIBE as a substantial collateral. If the incentives are hypothetically moved from deposits to borrowings, TRIBE gains an use case as owning and staking it in that pool makes a source of cheap loans available to you.
The Aave incentives pre-date FeiRari merger, and arguably has become a weak link in FEI’s overall monetary policy. I wholly agree that this represent the greatest source of second-order effects of borrowed FEI. I would concede that some sort of rate driven monetary policy might not be possible until the legacy farming programs have mostly ran their course.
Though this is a discussion well beyond the scope of a single proposal or DAO vote, which is why I wish to start exploring it now before it is tied to any concrete proposals; so we may thoroughly examine both sides of the argument when our intellectual faculties are not yet clouded by any sunk cost fallacies.