SIP-0066: Curtailing Zero Borrowing

Bitocracy SIP | Sovryn Improvement Proposals
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Sure. In hindsight that is easy. But it was impossible to anticipate how much there would be, the risk was clearly non-0 and we want to minimize originations.

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25

Whatever education and other steps you think we should take - they can best be done with a Zero pause. The constant churn of redemptions is not helpful and keeps us off balance. It makes it harder to see what is working and what is hurting.

Also, given the significant number of votes against this proposal, I think the risk that it will be difficult to reverse, when the situation presents itself is negligible.

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  1. Redemptions happen when people sell DLLR on the AMM, causing the RBTC/DLLR price to go above the market. That incentivizes people to sell RBTC for DLLR and then redeem the DLLR at the market rate to get more RBTC back. If new DLLR isnā€™t being minted, then there wonā€™t be nearly as much sell pressure with people trying to off-ramp RBTC to BTC and possibly to fiat or external stablecoins.

  2. See #1. This SIP will mostly if not entirely stop the minting of new DLLR, so there will be much less sell pressure on DLLR that drives up the RBTC/DLLR price. That should take away the incentive for redemptions.

  3. Redemptions are a direct way to defend the peg. Another way is to reduce unwanted supply being dumped on the RBTC/DLLR AMM. A final way is to increase the demand for DLLR so that it counteracts the sell pressure on the AMM.

  4. The only way the supply/demand balance can be observed is through markets like RBTC/DLLR. If the price goes above market, there is too much supply relative to demand. If it goes below, there is not enough supply relative to demand. Even this is inexact in terms of Zero because an individual may simply want to shift into RBTC from DLLR due to market outlook and cause a temporary increase in the price. That represents a shift from demand to supply by one person, but that tends to average out with other users going the other way. However, even an individual suddenly changing an opinion about BTC and dumping DLLR for RBTC can be enough to trigger redemptions in the short-term.

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@yago @light and other core team members: I can only assume that you had access to data that compelled you to push this SIP in this timeframe, and that losing the DLLR peg atm might have been the death knell for Sovryn. Hence, as a business person, I respect your decision. As long-term staker, I obviously voted no, mainly because the only promising revenue source is now dried up. As a community member, I am checking out of Bitocracy until it fundamentally changes from decentralization theatre to something worth its label; I mainly expect a tranaparent and consistent process with pre-defined and adhered timeframes.

I have always admired your audacious vision for Sovryn and when Zero launched it was a simple yet compelling product for HODLERS. It was now paused because we had to defend the DLLR peg!?! Seems that complexity has escalated quicklyā€¦Developmental question for you, no answer here needed: are you the right team to create a Bitcoin-backed, stable-coin based L2 financial system?? What talent/experience do you really need to have on board to defend the peg when DLLRs TVL gets big?

I know about the financial runway and the very limited choices at hand. Fresh investor money unlikely, too a this valuation. If I were you, Iā€™d poach the best talent from Ethereumland and attract them by parting a substantial portion of your own token allocation; itā€™s the classic founder conundrum, control a large share of a small pie, or let go of control, get the big guns in, and enjoy a shrinking share of a growing pie.

Ultimately, the better story wins. Others are ā€œmaking Bitcoin magical againā€ while Sovryn chokes on its own ambition vs. capacity; and donā€™t mention the runaway velocity of innovation around Ethereum. Itā€™s time for you to get real on what you can and canā€™t deliver until the next bull run!

Good luck in your upcoming hard choices and trade-offs. I have not rage-quitted my stake, but I thought about it today, for the first time ever. Instead, I swapped my non-staked SOV bag for hard BTC, at a nice profit.

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