First Zero DLLR Risk meeting tonight!

That is the point, to temporarily discourage new lines of credit being open.

I am pretty sure that the 5% origination fee is not staying for good, only until we stabilise the peg


“In the near term we expect to see multiple DLLR demand drivers emerge.”

Could you elaborate on this?

In your next reply you mentioned “My sense is that throttling growth for a short period of weeks”

which does in fact seem pretty “Near term”.

Disclaimer – My maths could be way off here. Would appreciate some additional eyes on the logic.

Our top priorities should be:

  1. Maintain DLLR peg
  2. Drive revenue to stakers

Higher revenue means higher $SOV price, which means higher leverage for Exchequer to incentivize DLLR demand (SP, AMM, Lending, etc), which means less redemptions, period.

To facilitate this, what if Exchequer acted as a first line of defense against redemptions? For example, Exchequer could maintain an arbitrary open LoC, let’s say up to $100K, per week at a CR of 150%. Then we lower redemption to 1% (which pushes peg to $0.99) and keep origination at 2.5% (absolute max 3%).

With this combination I feel the rate we can drive revenue and therefore price increase to $SOV and therefore LM rewards for DLLR demand could outpace the sell pressure from $SOV issuance.

Here is the state of affairs presently:

  • Total revenue the past week according to Sacro is: 1.5 sats/VVP
  • Total SOV staked is 6.6M SOV, which equates to 45M VVP, which is on average 6.82 VVP per SOV staked. This is from CEK’s recent analysis.
  • Using CEK + Sacro analysis: (1.5 sats / VVP) * ($27,000 BTC price) * 45M VVP / 100,000,000 sats/BTC = $18,225 Weekly revenue being generated.
  • Which means Avg APY per SOV staked at today’s price = ($18,225 * 52 Weeks) / 6.6M SOV staked * $1.02 price = 14.1% APY

Now, let’s take a scenario where Exchequer has a weekly budget to absorb $100K of redemptions by maintaining a LoC at 150% CR. This should absorb most redemptions at this point, but I acknowledge there may be some which fall through the cracks:

  • Exchequer pledges $150K BTC to borrow $100K ZUSD/DLLR.
  • Assume all $100K gets redeemed against for the week, then Exchequer would have to swap $100K DLLR for BTC in AMM to re-fill. I acknowledge as soon as they swap in the AMM the problem just goes from one pocket to the other. But this specific process is done to keep Zero loans and therefore revenue flowing.
  • The resulting revenue from Exchequer operations is $3,000 in origination fees, $500 in AMM swaps fees ($100K DLLR>BTC then arbitrageurs who sell $100K BTC>DLLR to rebalance the pool at 0.25%), plus $1,000 in redemption fees (if we set redemption to 1%), so $4500 additional revenue to Bitocracy.
  • Assuming we can keep at a minimum the same weekly revenue of $18,225 (or ideally more), then the new $4500 revenue pushes us to $22,725 weekly revenue.
  • Now Avg APY per SOV Staked = ($22,725 * 52 Weeks) / 6.6M SOV staked * $1.02 price = 18.26% APY

Next, let’s assume we only need to target an average of 7% APY in Bitocracy for people to stake as opposed to sell their $SOV. That implies: $22,725 revenue per week * 52 Weeks * $1.02 per SOV / 7% Target Yield = 17.2M SOV that could be staked at an average of 6X voting power multiple and still achieve 7% APY for the average $SOV staker. Since we only have 6.6M currently staked, that means we have 10M additional SOV that could be issued via LM rewards and still maintain 7% APY, assuming the variables such as average length of stake and protocol revenue stay the same.

Ultimately, what this means is we have quite a bit of leeway to issue $SOV as rewards and soak up DLLR in SP, AMM, Lending or just straight up hoDLLRing IF AND ONLY IF the revenue continues to justify the $SOV price. Increasing origination and redemption fees to stifle demand is revenue death, which is why I have opposed it.

The small cost Exchequer bears to give comfort to the community that we’ll eat redemptions first (up to a certain point) is FAR outweighed by driving revenue to $SOV, which in-turn massively benefits Exchequer’s treasury over any single party.

Basically, rising tide raises all ships. Or in this case revenue is our rising tide. We should do everything reasonably within our power to keep loans being originated in Zero.


I had been thinking along similar lines to the above—that is, a protocol-owned LOC which could absorb redemptions pending $DLLR use-case and adoption—but lacked the insight to make such a case persuasively.

Nevertheless, I’m inclined to reject SIP-0059 in favour of this approach, subject to feedback from the usual parties.

If this math checks out, this is borderline genius. Quality out of the box thinking. Genuinely impressed. This doen’t even need a SIP, does it? The Exchecquer can execute this on their own…?

3 more LOC redemptions overnight is not the best thing to happen, LoC owners are not very happy, maintainig more than 200%collateral ratios just to not be redeemed against is not the best thing in the world and even with that CR you are not safe…

I think this(your proposal above) is a perfect subject to discuss and explore at the next meeting or after we get the Lending pool and SP programme online because I feel like wat you are proposing is a more MTF solution and not a solution that will take efect imediatly , also , I am not very happy with leaking funds from the EXchequer into the stakers pockets(even if I am one).

Right NOW the issuance of new DLLR is what is causing the peg issue and we have to deal with that since that is the root of the problem.

2 weeks of very low no. of new LOCs should not be a huge problem for the stakers

Thanks for your thoughts David, find them really interesting and I could get behind them. The “security wall” protocol owned LOC is a thing we should keep in mind I think its would add a significant level of confort for LOC owners.


A controlled and sustainable growth is preferable to degen short term growth.

I think that driving more revenue for bitcocracy – short term – is not a priority. And I also don’t think that the price adjusts so fast to short term revenue. Rather, stability of the DLLR peg and redemption levels – a much scarier & uncertain thing than a transparent 5% fee – might impact SOV price much more. These are much more visible metrics.

I do agree that 5% seems excessive but if it doesn’t, we won’t achieve curbing DLLR supply.

Thus Im in favor of @yago 's SIP. Lets hit the brakes and be patient :om:

If it doesn’t pass, lets try with the reasonable compromise

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Looks like SIP already has gone to vote. The only thing I support more than revenue is speed of execution, so I was happy to see that pushed out quite fast. Let’s see how ‘two weeks to flatten the curve’ goes.

But my hope is we get SP and DLLR lending up and running asap (within ~2 weeks?) then we start trying to out-run redemptions with revenue and $SOV rewards, as opposed to squashing demand.

I’ll leave it at that for now.


Thanks David.

I have shared a similar analysis and come to a similar conclusion here:

My argument is that we need to get the SP rewards in to open the floodgates - which is also what you seem to be implying.

As to the idea Exchequer hold a LoC, I have two questions:

  1. Is that not just kicking the can, since Exchequer will need to buy BTC with DLLR. So what have we accomplished?
  2. If that is not the case, from where will Exchequer have the funds required?


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Yes, completely agree my thought processed was influenced and arguably stolen from your analysis. Also by CEK and Sacro’s work. I think I even stole the Exchequer buffer idea from someone in Discord :sweat_smile:.

I agree with you this ‘solution’ effectively just moves the problem from one pocket to another. However, my tiny critique with your analysis is that it takes for granted actually achieving the revenue and in my opinion we’re too scared to make money. I think it should be an immediate priority. ‘Sales cures all’ is such a true statement. While Exchequer opening a LoC does NOT increase DLLR demand directly, it does help remove the fear factor we have around growth. We’re so scared of redemptions that we’re breaking the peg and pushing origination fee to untenable levels IMO. Despite good intentions I think this will work against us. The Exchequer LoC could possibly:

  1. Alleviate concerns leadership justifiably has around user backlash when they get redeemed on, which in-turn allows us to more comfortably reduce redemption fee to 1% and thus restore $1 peg. Stability of peg gives users more comfort to originate more loans and hold DLLR in AMM pool or as a savings tool.

  2. Alleviate concerns community has with opening LoC’s if they know their first on the chopping block, therefore driving more originations and more revenue.

Essentially, all models are rendered impotent without revenue. We need to risk pain for glory on the other side. We should not be squashing demand out of fear, but instead trying to out-run it with revenue.


I think maybe the next Risk meeting should start with a short debate between you and I :slight_smile:


Thoughts: Could SOV stakeholders get a discount on the origination fee for Zero?


That would be an interesting concept! Putting demand on token perhaps by length of stake to get a tiered discount on zero.


I would like this to happen, I am trying to follow and understand everything and having both ideas laid out with both of you asking and answering each others question would help me better quantify the risk/reward ratio of both proposals.


Yes. However requires additional development. Should all stakers get the same discount?


Thank you Yago for your input.

No I do not think all SOV Stakers should get the same discount. I think it should be weighted with the governance power with tiered levels.


Yago, since it seems the % it costs for redemptions is closely matched to the offset of DLLR to it’s $1 peg, why don’t we drop the redemption fee to 0.5% and get closer to 0 cost to maintain the peg? Since this seems to be so correlated. Thanks

increased redemption activity negatively affecting adoption, and therefore origination fees

okay so should we then lower origination fees and raise redemptions?

its all an experiment to find the happy equilibrium. If origination and fees plummet this week we’ll know that 5% isnt sustainable for growing Zero

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