Author: Owsley
Date: Jan 25, 2024
Summary
- Increase mint and redemption fees for all existing trove managers
- Add new trove managers for wstETH and sfrxETH with with no mint fees and higher interest rates, and where the redemption fees are given to the users who are redeemed against
- Adjust TVL limits on existing trove managers
Motivation
The proposed changes aim to address the evolving needs of the protocol based on changing market dynamics. By offering new trove managers with tailored terms, we cater to both short-term and long-term borrowing needs and improve the range of tools available to help maintain the mkUSD price peg. The adjustments in fees and interest rates are designed to balance attractiveness to new users while ensuring the long-term sustainability and security for the protocol.
Background
The active trove managers have a hardcoded interest rate cap of 4%. In current market conditions this rate is very low, so users borrow mkUSD to either swap for other stables offering better yield, or swap for ETH for cheap on-chain leverage. This creates downward pressure on the mkUSD peg which leads to redemptions, forcing users to maintain higher and higher collateral ratios or seek other avenues for borrowing.
Core to this proposal is a new version of the TroveManager contract, deployed at 0x14a3b726724A0E620CDe342A7C04c09E0D05f7a6. The following changes are introduced:
- The max interest rate restriction has been removed.
- It is possible to redirect some, or all, of the redemption fee to the users who are redeemed against.
- There is a new hook allowing information to be passed about redemptions, so we can optionally add further incentives for users who are redeemed against.
We intend to deploy 2 new trove managers, one for wstETH and one for sfrxETH, so that with each of these collaterals users may now choose different “tranches” with unique properties:
- The new tranches will start with a 6% interest rate, 0% mint fee and 1% redemption fee. 100% of the redemption fee will go to the users who are redeemed against.
- The old tranches will have the mint fee increased to 0.75% and the redemption fee to 1.5%.
These parameters make the old tranches more suitable for long-term borrowers, and the new tranches more attractive for short-term borrows. With the proposed fee structures, users pay less total fees in the new tranche if the position is open for up to three months. For positions open more than three months, total fees paid are less in the old tranches.
By setting a higher redemption fee in the old tranches, we increase the likelihood that the new tranches will receive redemptions first. With no mint fee and a 1% profit at the moment of being redeemed against, a user who reacts quickly upon redemption can actually turn a profit from it. For the old tranches, with less threat of redemption users should feel more comfortable lowering their collateral ratios over time.
Specification
- On the current wstETH trove manager:
- Reduce maximum debt 100 million
- Set base mint fee to 0.75%
- Set base redemption fee to 1.5%
- On the rETH trove manager:
- Set base mint fee to 1%
- Set base redemption fee to 1.5%
- On the cbETH trove manager:
- Increase maximum debt to 10 million
- Set base mint fee to 0.75%
- Set base redemption fee to 1.5%
- On the current sfrxETH trove manager:
- Set base mint fee to 0.75%
- Set base redemption fee to 1.5%
- Deploy a new wstETH trove manager with the following parameters:
- Maximum debt of 100 million
- Interest rate of 6%
- Base mint fee of 0%
- Base redemption fee of 1%, paid entirely to the troves that are redeemed against
- Mint emissions disabled
- Deploy a new sfrxETH trove manager with the following parameters:
- Maximum debt of 30 million
- Interest rate of 6%
- Base mint fee of 0%
- Base redemption fee of 1%, paid entirely to the troves that are redeemed against
- Mint emissions disabled
Benefits
For borrowers in the new Trove Managers:
- More competitive short-term borrowing options
- Encourages active protocol participation, with potential for profit through redemption fee rebates
For borrowers in the existing Trove Managers:
- Reduced frequency of redemptions allows for lower collateral ratios on long-term borrows
For PRISMA lockers:
- Increased fee revenues
Next Steps
Smart contracts are already implemented and tested. Work has begun on the front-end requirements.
Following community feedback, a snapshot vote will be scheduled to formalize consensus. Upon approval, we will deploy the necessary smart contracts and prepare the on-chain vote.