- Edited
Thanks ser - I would have the following comments:
unbanksy33 In a limited capacity outcome, all else equal, holders benefit in backing appreciation. Borrowers, however, benefit from both backing appreciation AND returns on borrowed capital (dual value accrual).
This proceeds on the basis that the Treasury is somehow accruing value - the Treasury has, and will likely continue, to lose value in real terms - the dominant strategy for the treasury is to stick DAI in the DSR which has been earning 1% and will now move to 3.49%, well below CPI. There is no value accrual, there is just a slower decline in true value - this will continue to be the case and the protocol cannot be expected to accrue value without speculating on volatile assets (something better done by holders)
unbanksy33 This splits community into "haves" and "have-nots"; since interest is collected on repayment & Cooler has built-in roll functionality, this inequality can be continued in perpetuity. Here is how I see the payoff matrix between borrowers and holders:
Fees can be brought upfront and distributed to holders through bonds - that's fine at the 0.5% rate
unbanksy33 In $69M cap + 0.5% interest rate scenario, borrowers benefit bigly (3), holders lose out on $69M capital allocation (1).
In $69M + 3.3% interest rate scenario, deal is less sweet for borrowers (2) but still competitive to any other lending market. They also benefit in backing increase from 3.3% interest, as do holders (2). There is a way to further optimize this in favor of holders which I’ll share below.
In full capacity + 0.5% scenario, facility is open to all so everyone has same payoff (3,3)
In full capacity + 3.3% scenario, higher interest rates are less attractive to borrowers but benefit holders (2,2).
This ignores that 0.5% at $3000 is actually good for holders because it is the best chance for us to regain mindshare, builders and create token sinks across defi - with the likely effect of gaining a monetary premium (3,3)
unbanksy33 The current configuration is not a Nash equilibrium (as the holder and borrower have a better payoff state). I don’t see how the protocol can continue to function under this fundamental dynamic of unfairness.
This is only true in a world envisioned where:
- There is not enough capacity to for everyone who wants to to access - i.e. we keep deploying until there are no stables left in the treasury (incredibly unlikely)
- We do not trade above backing (then what are we doing here)
Of course the very thing likely to happen is that there isn't demand for full capacity and the mechanism has the effect that we gain monetary premium and head above backing. In that circumstance those who do not participate are just deciding to not engage in a core mechanic of the protocol as is their right - and can be somewhat compensated through fee direction
unbanksy33 OHM’s intended use case from the direction we are headed now.
This is complementary because it is a loan at backing - OHM's purpose is to gain monetary premium this helps achieve that end
unbanksy33 I care less about LTV as it’s useful insofar it’s accretive to protocol & remaining backers. A low LTV balances lender risk and borrower appetite.
There is no lender risk if volatiles are managed and loan is at backing