Recently, the price of AUSD has fallen to $0.94. One of the levers we have to help restore the peg is by adjusting the Stability Fee to incentivize some of the borrowers to buyback AUSD and return them, which would help restore the peg.
Rationale:
Stability Fee is one of the levers we can use to help increase / reduce AUSD supply which in turn will affect the price of AUSD
Implementation:
In order to restore the peg, I would like to propose increasing the stability fees
The proposed adjustment value are shown in the table below:
I don’t see the point of raising rates to squeeze AUSD minters now. A slight depeg is not that dramatic.
Any large AUSD minter repaying their position will drive the price to 1$ almost instantly because the liquidity on Ellipsis is just that low.
Since there is no current plan to build-up the AUSD product, I suggest we move to close-only in the meantime (setting the AUSD Available to 0 every once in a while). That would do more for the peg than unjustly raising rates on a 1.3M notional product (very very small).
What we can do immediately is to reduce the AUSD available down to prevent new minters.
Without the ALPACA emission, the yields on AUSD pool is already quite low (already negative for the BUSD pool.) So I think some users will start repaying.
Let’s see what that does to a peg in a couple of weeks and we can re-visit increasing the stability fees.
As someone with a large AUSD holding, I am heavily for this proposal.
Due to buying my AUSD from the market to support the peg, I am now in a position where I could either take a (very) heavy loss selling my AUSD on market, or wait for people to close their loans, which may never happen in the event these loans are owned by accounts that are now inactive or lost. Therefore, squeezing these loans into liquidation (which may actually take years at these interest rates) is the only way for me to get my funds back without taking a heavy loss.
However, due to the low liquidity on Ellipsis, the AUSD Stable Swap function will now need to be used to repay loans for the existing loan holders, since many AUSD liquidity providers have already removed their liquidity. Will liquidation take this into account or will it try to openly buy AUSD on the market? If it buys from the market it may end up raising the AUSD price way above the $1 mark, allowing arbitrage through the use of the Stable Swap function.
That’s certainly a tough situation to be in, I see where you’re coming from.
Depending on how big your AUSD bag is, your main issue is that the liquidity on Ellipsis is very limited and you’ll suffer a lot more from the price impact of larger trades than selling AUSD below peg.
AUSD will never be at-peg without sufficient volume and deep liquidity. It would be interesting to look into Wombat’s Factory Pools to replace the Ellipsis pool.
All that being said, I’ll say the main culprits for the depeg are the stables pools which, through the looping method, resulted in massive sell pressure on AUSD. Unwinding these “looped” position would, inversely, result in massive buy pressure on AUSD.
The borrowings from the ibUSDT pool have been mostly fully repaid (only ~37k AUSD outstanding), I don’t think we should raise the interest rate for it.
The focus should be on the ibBUSD pool which still has ~730k in borrowings.
I’m excluding the ibBNB pool from this because I don’t think it was used for looping and therefore didn’t contribute as much as the stables pools towards the depegging. I may be wrong though.
The price of AUSD is now back at $0.975 - which is within what we consider an acceptable range.
Given, the recent development with BUSD, we were trying to see if there would be an interest from BNB Chain in supporting a decentralized stablecoin for the ecosystem. That’s why we haven’t reduced the available AUSD.
I don’t think AUSD can even be considered as a stablecoin for the BNB Chain while it’s not near the $0.999 mark consistently. In its current form, I don’t think it can maintain peg either purely because the interest rates are not dynamic and there are not enough liquidity pools/CEXs that use AUSD.
I understand making the interest rates fully dynamic would require a lot of dev work, but I believe if you want AUSD to be utilized across BSC at the very least we will need to remain at peg, which could involve keeping a closer eye on the interest rates.
I didn’t even think of this but you are right, the current BUSD situation is a great opportunity for AUSD adoption if we can show the BNB Chain we can remain at peg, which will lead to greater partnerships and adoption.
The problem is not the interest rate, it’s the liquidity.
Just look at Helio Protocol’s HAY, you can mint it for 2% APR with BNB (which is less than the current 3% with ibBNB) and it maintains its peg because the liquidity in Wombat’s Side Pool is deep enough.
Higher interest rates are not necessary until the product has achieved scale imho. What we need is deeper liquidity so the price doesn’t vary so much with each sell/buy.
Liquidity comes from rewards, without ongoing rewards the liquidity for AUSD will continue to diminish. I’ve never used Wombat so not too sure how they work exactly, but at first glance HAY has an APR of 18.58% which explains its liquidity, and I cannot find where to mint unlimited HAY with collateral for leveraged rewards, which explains its peg.
Given there are no more rewards for AUSD, I believe raising interest rates should incentivize people to close their loans thus pushing AUSD closer to peg and essentially sunsetting the feature for now, at least until after perps and v2 are out.
Honestly, at the end of the day I just want to be able to sell my AUSD back to BUSD without a significant loss lol