gud dao governance. I'm super proud to see everyone iterate on this & keep it unstuck.
RFC: Additional Actions to Take for Clearinghouse Loans
- Edited
Yella’s point is valid regardless of how much the topic of opportunity cost is brought up. These proposals and edits are all more strongly benefiting the holder than the protocol.
That simple fact is OK as long as everyone is not blindly led to think these systems strongly benefit the protocol. The arguments laid out are clear - this is great for the holders and uncertain for the health of the protocol. Please note I said uncertain because only time will tell if it was actually positive or negative. It is certain this benefits holders.
The obvious reply to this will be “lower opportunity costs, more holders! Pristine capital!” These facts are not deniable but it does not speak to the general strength and health of the protocol. The repetition is cute but I don’t find helpful.
A broader why to @Yella may be a stronger control of global rates across the ecosystem. This is OK again but more is required to move the protocol to be an autonomous monetary authority.
in case it’s unclear - I’m cautiously supportive with the right parameters and motivation.
Don_G_Lover A counter-proposal means shifting from 100% holder benefit, and 0 for the protocol, to for example a 70/30 split.
5 days later
Two changes I'd like to make to this RFC:
Modify the RBS minimumPriceTarget calculation while the 30 day Simple Moving Average is below backing. Make it the lesser of:
- (1 + RBScushionSpread) x (coolerLTV) x 1.02
- Backing
This change takes into account the possibility where coolerLTV is <2% lower than backing. If the lower cushion then consistently sits above backing, the protocol lowers remaining backing each time that cushion is activated. Adding this logic keeps the cushion in a good place until 30day SMA can be followed again.
The second change proposed is to remove enforcement of the TAP-25 annualized interest rate. Customizing interest rate and tenors allows the protocol to define a non-linear yield curve. This more closely matches how rates act in traditional markets and also allows for the possibility of market-determined rate ranges in the future.
Before moving to OIP, I'd like feedback on these changes.
I do not believe that a market-driven rate is appropriate for the Cooler Loans facility. The underlying substance of Cooler Loans is not a DAI loan that is made to third parties based on market rates for borrowing. It is a core native feature of the protocol that enables holders to access the backing of their gOHM to tailor their personal risk profile. From the protocol's perspective, it is a risk free transaction provided that the LTV is set below backing.
I think the mindset of "what income can the protocol generate from this?" or "what is the opportunity cost of the DAI in the facility?" is opposed to the underlying logic of why Cooler Loans is proposed to be implemented.
My personal view is that the rate associated should be zero or nominal. Failing this (i.e. if the TAP 25 vote results in a different outcome than 0.5%) then the next best alternative is the certainty of a fixed rate so that users of the Cooler facility can do so with confidence.
WAGMIcapital I understand your point for Cooler, but what about for any future Clearinghouse? Vendor for example?
In my experience with loans, any product that allows me to access equity or underlying value has a cost associated with it. IRL this typically means an origination cost as well as ongoing interest payment. I am then free to tailor my risk profile to my hearts content.
I'd be happy to pay 3.3% on a cooler loan, knowing the capital I deploy would be outpacing that rate. At that point it's just a cost of doing business. If I can't beat the rate, I don't take on the loan. It is a choice with benefits and risks. A key difference between this interest payment and the interest I pay on other loans, is that this payment directly goes back to the protocol. This benefits me as a holder, whereas interest paid at other institutions does not as I have no upside or stake and things are generally lost in layers of middle management.
So thinking long term, I am betting that the protocol is able to use that 3.3% in a way that is beneficial to me as a holder. Economies of scale at play here. I don't see this as opposed to the logic of Cooler loans… when the protocol benefits, holders are also benefitting. Cooler lets me access that equity now, while still providing benefit long term.
If I didn't think that the protocol was going to be able to do anything, then obviously I'd rather have the loans for free to allow me what would essentially be a tax free exit. Admittedly, I might be making a mistake thinking too long term. I don't think the hurdle rate should be excessively high, or drive majority defaults. But also have a hard time wrapping my head around how a no fee 0% interest rate makes sense.
There can be arguments made for a market driven rate or for an arbitrary fixed rate, imo this plays more into what the other variables of the loan are. Just wanted to touch on the mindset part and highlight how I don't think the protocol benefitting and holders benefitting should be mutually exclusive.
WAGMIcapital Right, and I don't disagree with you. It's this conflict of reasoning behind the interest rate that makes me not want to enforce standardization across all current and future Clearinghouses. Different clearinghouses will have different goals/target users/tenors, so it doesn't make sense to me to have a single interest rate apply to all of them.
abipup agree Abi
hOHMwardbound Thanks for the response and outlining these thoughts hohmward.
I certainly agree with you that everyone (i.e. facility users and those that do not use the facility) benefits from having this facility in-house versus leaking value externally.
I remain of the view that the substance of Cooler is not a loan, but rather a facility to enable users to tailor the risk profile of their backing and allow the protocol to preserve a low risk profile. As monetary premium returns and additional utility for OHM is unlocked, usage of the Cooler facility will taper as users unlock their OHM by repaying the DAI backing to the treasury.
At a facility size of $69m I believe there is plenty of capacity for the protocol to pursue its objectives without sourcing income from users of the facility.