First Zero DLLR Risk meeting tonight!

[yago]

Tonight at 4pm UTC, we want to have the first Zero DLLR Risk meeting.

The purpose of this meeting is to examine Zero and DLLR and suggest any system or economic adjustments that need to be made. For example, if we see that implied DLLR price is trending below $1, we may recommend an increase to the origination fee. The Bitocracy will then vote on if to implement these recommendations.

The meeting will be held in the Community Voice room (Discord).

This will be a reoccurring meeting, open to the community and recorded, for at least the next 4 weeks.

See you there, Sovryns!

[Magnus]

Zero DLLR Risk Meeting: Tuesday, March 21, 2023

Dashboard:
https://sovryn.com/zero/analytics

Recording:

Zero DLLR Risk Meeting: Tuesday, March 21, 2023

[one_digit]

Here are some notes I took during the meeting. It doesn’t fully capture the back and forth in the conversation, so I encourage you to listen to the recording as well.

Zero DLLR Risk Meeting

2023/03/21

The purpose of this meeting is to examine Zero and DLLR and suggest any system or economic adjustments that need to be made. For example, if we see that implied DLLR price is trending below $1, we may recommend an increase to the origination fee. The Bitocracy will then vote on if to implement these recommendations.

Peg is a higher priority than minimizing redemption. The peg is essential to the integrity of the product.

How to check the price of DLLR

Go to the Swap page on the Sovryn Alpha dapp and click the down arrow on the left asset, it will drop down a selection that shows last traded price on all the assets, like this.

This is one way to check the price of DLLR.

The leadership proposal being considered is to raise the origination fee temporarily to 5% to reduce borrowing and therefore supply growth until more use cases are brought online over the next two weeks. It is possible to adjust the origination fee floor separately from the redemption fee floor. The ceilings can be adjusted separately as well. This proposal is only to change the origination fee.

Concern was voiced about the level of the redemption fee. A proposal was made that we reduce the redemption fee to 1%, which could potentially protect borrowers from over-aggressive redemption but also enforce a tighter peg so that the stablecoin is a better product and more attractive for hodling.

Another suggestion was made to educate users about the costs of off-ramping in the current situation, which would allow users to assess for themselves whether this is an attractive strategy and potentially reduce sell pressure on DLLR from people trying to off-ramp through RBTC. It would give people the freedom to decide for themselves what use case to pursue under the current conditions of the ecosystem.

Concern was expressed that redemptions are a terrible (and usually unexpected) experience and that these need to be avoided if possible. A suggestion was made that there might be a way to pay more to be less vulnerable to redemptions. At present, redemptions are essential to the peg function. Efforts have been made to bring this risk to the attention of users with well-placed information in the wiki. Suggestions have been made to add a notification for people who are in the danger zone for redemptions and to notify users on the dapp when taking out a loan.

A temporary 5% origination fee might cause users simply to wait until the temporary period is over. But this may be exactly what we want for this period—until we can bring on a DLLR lending pool and stability pool rewards.strong text

[dseroy]

I’d like to solicit community feedback .

“At what origination fee would you stop using ZERO or think it’s too expensive to justify taking a loan?”

The options are 1%-6%. Please answer this question for you specifically as a Zero user and not as a Bitocracy staker that earns origination fees. At what point would the cost be too high for you personally to be hesitant to use ZERO.

Please vote on this poll here: Telegram: Contact @sovryncommunity

[aaron023]

I wanted to include my conversation in the forum earlier with @Ororo , as I think a smarter solution could be proposed than simply increasing the origination fee only.

Changing the BaseRate/DecayRate formula to increase the origination fee at a steeper climb during busier periods could protect users from unexpected redemptions.

Additionally, now seems like a good time to adjust the formula if the contracts will be looked at anyway.

I’d also like to add that there should be a mechanism that ensures that any origination fee increase in the short term is reverted to its original value after a set period.

Perhaps this can be written into any proposed SIP but I’m not sure how that would work.

[Martin_Adriaan]

Wouldn’t it make sense to communicate clearly what the envisaged rewards for the stability pool will be and that it will be implemented soon. I understand that this might be coming as soon as 1 or 2 weeks? Just knowing these facts might be enough to incentivize people to buy DLLR at a discount now?

More generally, communicate clearly all the demand that will be coming for DLLR, in the coming weeks, that might really help people buy when in discount and holding in preparation for things to come.

I would combine this with expectation management about the 1$-peg during a bootstrapping phase; for a decentralized stablecoin temporary deviations from peg are to be expected. Sovryn should not manually tinker with things too much to maintain a very tight peg. The current deviation from peg is not that bad, no need for measures so far. The bad optics are overstated imo (and the bad optics generated by tinkering with fees underestimated). My two cents.

[one_digit]

Good thoughts! Thanks for sharing.

[TacooCharlie]

If we’re going to let redemptions run at 1% fee we need to warn the community first. I think this could really damage Zero. I’m a broken record on this issue though.

As of the last reporting in the Zero Analytics the lowest CR was 188%, after lowering the redemption fee that’s most likely going to go up significantly. Again, as i’ve stated many times before.

yet again, if borrowers have to maintain a CR well over 200% then the entire marketing of this project needs to be changed. It runs the risk of being branded as a scam that fills the pockets of the very few that are skilled enough to program an arb bot. I’m guessing that is far less than 1% of the potential user base

[btcLegosi]

Mi inglés no es bueno. Tengo que descifrar mucha información. ¡Gracias por facilitar la llamada grabada!

Mis pensamientos sobre esto:
En primer lugar, estoy de acuerdo con mucho de lo que dijo @one_digit, la educación siempre será un pilar fundamental para mí. Aportaré desde el lugar que tengo en este sentido.

• Explicar que Zero es un protocolo que esta diseñado para funcionar bien si se encuentra sobrecolateralizado.
• La importancia de una LoC sana.
• La promoción del uso sostenible.
• La importancia del pool de estabilidad y que ademas ofrece una rentabilidad del …% APY aprox.
• Realizar un ejercicio de visualización, en el que los nuevos usuarios vean que si bien aún no existe una utilidad específica, DLLR representa una alternativa de ahorro muy sólida frente a otros estables colateralizadas en FIAT. (El panorama bancario actual podría usarse para sugerir peso en esta propuesta)
• Educar sobre el riesgo potencial de redenciones.

Segundo; Como primera y necesaria medida. Pienso que una bóveda Lending le daría a DLLR esa utilidad de la que carece en este momento, seria un muy buen primer caso de uso, incentivaría a verlo como un instrumento de ahorro (y no como de intercambio instantaneo), funcionaria como una pequeña represa de liquidez y HODL (el 1er parpadeo de luz (utilidad) de DLLR) ¡PORQUE YA ESTÁ VIVO!

Pero soy consciente que no es suficiente para solucionar el obstáculo actual.

Por ultimo, una tasa de originación de 5% asustaría al usuario nuevo y promedio, que se acerca por la ausencia de intereses. Lo veo viable solo en un punto antes de una inflexión. Relacioné esta intención de aumentar la tasa de originacion por la posibilidad de cerrar un trato con la empresa de minería (en adición al obstáculo actual), si ese fuera el caso y se pudiera obtener ventajas para DLLR, estaría abierto a escuchar.

Siempre y cuando la palabra “temporal” este tallada en roca.

Tengo fé en este producto. Como parte de la comunidad tendré mi porción de DLLR bajo estricto HODL

[ArtOfTomas]

Grandes aportes Esteban! concuerdo a full con vos.

El 5% definitivamente alejara a usuarios nuevos, y eso, tengo entendido es intencional. La idea es reducir emisiones de DLLR hasta que los otros usos esten disponibles y en ese momento se buscaria reducirlo nuevamente.

Hasta q no se pueda incentivar la demanda habra que bajar la emision.

Si entendi bien todo eso es lo que se esta proponiendo. Personalmente me abstendre de emitir mas DLLR hasta q la tasa baje, y los que ya tengo iran al AMM y la estabilty pool.
Al igual que vos, voy con el HODL. Y ayudare a que mas gente entienda lo que esta pasando y los beneficios de la Estability pool, que creo muy pocos estan al tanto.

[ArtOfTomas]

I really like the openness in which these things are been discussed.

The use case I am most excited about is the stability pool. Specially the way I see the future is times of extreme volatility and it could provide a great way to catch those dips in BTC price.
For that reason I’ll personally will try to use my content to educate people on how it functions and how they can take advantage of it (I think here is where I can add more value to the protocol) I’ll personally Hodl my DLLR in either AMM or the stability pool.

I think incentivizing the Stability pool is a great idea, although we have to be careful on how it is done which I’m confident on the team’s ability to do so.

And we also have to be very clear to explain to users all the costs of Zero. The main criticism I’ve received from promoting the protocol is that people believe the name is misleading. Since, between origination fees, slippage and all that, they always end up incurring more costs that what they thought.

Yago made some rough estimates on the actual cost of using Zero, I think this is great. we should probably do a more rigorous estimate and advertise it to new users. As long as everyone fully understands what they are doing there won’t be issues.

The problem arise when people get surprised by unexpected costs.

I do understand this is a very difficult thing to do, but I think is important. Unfortunately I do not posses the mathematical mind to do so. But if someone from the community could, I can help with getting the message out and include it when I create content about Zero and DLLR.
Building a brand that is rock solid and built on trust is something very difficult to do and very easy to destroy, and if it does, repairing it is even tougher.

That being said, I am very happy with the work done so far and I’m very hopeful for the coming weeks, months and years.

Stay Sovryn everyone!!!

[Sitizen]

Since we met yesterday I have observed 2 more LOC open ,I am more on the side of suppressing demand for LoC rather than encourage redemptions.
Redemptions are controversial, it is easy to discuss encouraging redemptions when you don’t have a LoC open or you haven’t been redeemed against. Majority of the people that have seen their LoC redeemed were furious.

Since this is a short term solution until further DLLR/ZUSD demand venues come online, I am in favour of reducing the redemption fee by a maximum 1% (to close the peg gap slightly) and increase the origination fee to 4%-5%.

I believe we need to quickly encourage deposits in the stability pool, my feeling is that BTC is in a area where there is potential for quick and sharp corrections and we want to see a very smooth Liquidation process if that were to happen.

[yago]

I will attempt to synthesize the conversation here and in the general discord.

Our priorities, in order of importance are:

1. Maintain the DLLR peg
2. Keep redemption level low

In the near term we expect to see multiple DLLR demand drivers emerge. In the interim we are willing to accept significantly reducing borrow demand. Conversely, to promote DLLR hoDLLRs, we seek to keep the lower bound of DLLR close to $1.00.

We will continue to monitor the system dynamics and have weekly meetings to review.

For the coming week, I will propose the following - and prepare a SIP for Bitocracy approval:

1. Increase the Origination fee - Base: 5%; Max 7.5%
2. Reduce the redemption fee - Base: 1.9%

We will review newt week with a view to reducing both fees further, with a goal to reduce both to the minimum required.

Please find the SIP draft: SIP-0058: Zero Fee Floor Update: March 22 - Google Docs

[Nux]

@one_digit

A proposal was made that we reduce the redemption fee to 1%, which could potentially protect borrowers from over-aggressive redemption

Could you help me(us?) understand how a lower redemption fee would potentially better protect from redemption? In my mind higher redemption fee = less attractive to redeem
And vice versa, lower redemption fee = more redemption

Is it because lower redemption fee = better peg = less likely to redeem ?

[one_digit]

What I said was poorly stated. What I meant was that 1% may be enough to protect from over-aggressive redemption. It won’t protect borrowers as much as 2.5% but will protect them more than 0.5%.

I’m not convinced that the size of the fee will have much impact on redemptions. Unless we balance supply and demand, the value of DLLR will continue to drop until redemptions happen regardless of how low it has to drop to trigger redemptions. If I’m right, then it might as well be 1% (or even 0.5%) because redemptions will happen anyway and a lower fee means a tighter peg.

[dseroy]

5% is so excessive. Please, let’s not do that. We shouldn’t overly throttle originations. There is rough consensus that getting over 3% starts to deter people.

My vote: 3% Origination and 1% redemption is a reasonable compromise. 1% brings natural $DLLR price to $0.99 which is a Schelling point close enough to push it to $1 organically.

Maintaining the $1 peg and growing the loan book should be priority. Zero is finally generating legitimate revenue for Bitocracy, thus bolstering $SOV floor, thus giving Treasury far more breathing room. Higher $SOV price solves so many issues for LM rewards in: SP, DLLR/rBTC AMM pool and DLLR Lending Pool. All of which in turn can reduce redemptions and increase hoDLLR’s. We have to keep revenue and adoption high. I think we’re over-reacting to this redemption issue and throttling growth which net hurts us. Absolute worst case Exchequer throws a low CR LoC up there and absorbs some damage ourselves and we’ll just re-buy some Bitcoin.

Let’s stop blocking our growth.

[Phrygian12]

I agree, 5% is too much.

Isnt it called Zero because its zero interest?

I realize that the “origination fee” isnt technically interest, but at %5 its a huge Gotcha to anyone that wants to use it. Honestly I think this needs more interest on twitter or reddit or something. Maybe we are proposing rates like 5% because we are bias and in an echo chamber.

Ask any normal person if “Zero interest loans” with a 5% “fee” doesnt sound predatory.

[Sitizen]

@dseroy @Phrygian12 I think a 5% fee can be very efficient in supressing borrowing pressure, since the vast majority of borrowed fund are off-ramping through rbtc it is unwise to encourage new LoC until the DLLR demand issues are sorted.

It is good to note that these fee changes will potentially happen weekly and in my opinion is good to start off aggressive and then ease off if the data we get by next meeting is favourable.

In terms of stakers revenue i believe it’ll increase and the evidence for that is the previous fee hike which pumped the revenue significantly.

anyways, its just my opinion !

[yago]

You are correct that SOV rewards can help subsidize growth of this two-sided market. However, SP rewards are not available yet. My sense is that throttling growth for a short period of weeks, in order to maintain system integrity and set us up for long term growth makes sense.

you are arguing we should absorb more costs now. I would be interested in the specifics of this. Can you suggest a model or framework to think about this?

[Phrygian12]

Sure, I realize the function of rate hikes. But will the 5% interest fee hurt Zero adoption?

I sure wont be taking out any 5% interest loans. From a stakers standpoint, 5% sounds great, why not 10%? From a users perspective, it doesnt sound so enticing.

I look forward to see how the new interest rate is perceived amongst people.