I was a bit surprised when this popped up on snapshot today. This proposal was brought to life just 1 week ago in the forum, and there are several unanswered questions from several folks.
First, I’ll report my opinion, already shared privately, and then a considerations on the proposal.
I see 2 scenarios here:
- we create a vault for which we establish a cap. Let’s say is 50M stables. And we back it up with 500m arb between collateral and reserve, meaning arb has to go to 0.10$ to get liquidated. We have something that let us get $50m in liquidity, but this amount is basically 1 incentive program for us. All of this by using half a billion arb. Feels like the amount received is too small to have an impact, and so is not that important considering we would have to put on stake half a billy of arb to do so.
- we decide to use the vault, with a certain cap tied to the arb price, over time. Which means, while w allocate 300-400m arb between collateral and reserve, we found ourself with arb going to 10$. We now a 4B collateral we can borrow against. And we still borrow 1:10 ratio so we borrow 400m. That is a meaningful amount.
Let’s not consider scenario 1, because to me scenario 1 is not likely important nor worth the effort. Let’s only consider scenario 2, with whatever degree of numbers you want (amount of arb, price of arb, amount we borrow), keeping in mind tho that we want numbers that have an impact, so we are on the high end of the barbell.
Whatever amount you have as collateral. Whatever amount you have in the reserve. Whatever amount you borrow. You now have a target on your back.
You have a series of number which, summed with depth of liquidity of dexes and cexes, can be put in a spreadsheet to calculate how much capital you need to liquidatate that position.
This could be economically viable, or not. But the moment in which it becomes viable, trust me someone will exploit it.
I want to state that
- this is obviously my personal view
- I am being pessimistic here
- I am also realistic tho.
And this was my take on the product. I also reflected upon it, chatting with proposers, and agreed that, for sure, we can do researches on this.
Which takes me to the second big surprise that I have: why are we packing the research with the product? Shouldn’t we first just research if this is viable, or if we are just falling in a crv type of scenario, with the difference that mitch can pick up the phone, his trezor, send money around, gather collateral and manage risk and we, as a dao, are as slow as a crippled elephant?