[For Discussion] Proposal to adjust stability Fee for AUSD to help restore peg

Community Discussion & Proposal Protocol Parameters
1

Background:

Recently, the price of AUSD has fallen below $0.95. 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

  • There isn’t currently enough revenue to restore the peg in a reasonable period of time.

Implementation:

  • In order to restore the peg, we would like to propose increasing the stability fees
  • We would raise the stability fee to the level such that the net APR% for the avg. borrowers in the vault become approx. zero.
  • If these borrowers use AUSD to provide liquidity in the AUSD-3EPSLP pool, they will still be net positive (~6% yields) and earn money from staking.
  • However, if they use AUSD to “loop” or their positions have higher utilization than the avg. borrower, they will be incentivized to return a portion of their AUSD.
  • We will monitor and further adjust the interest rate as required (i.e., lower back down if peg is restored, etc.)
  • The proposed adjustment value are shown in the table below:
Assets Current Stability Fees Proposed Stability Fees
USDT 2.0% 3.25%
BUSD 2.0% 3.25%
BNB 3.0% 5.00%

For the analysis, please refer to this spreadsheet: Stability Fees Analysis - Google Sheets

8 Likes
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I disagree that we should raise the stability fee for all pools.

Both the ibBUSD and ibUSDT pools are used primarily for “looping” and, imho, contributed the most to the sell pressure on AUSD.

I suggest we target these two pools first and see where it takes us.

2 Likes
3

Assume this just a config change? Or will it require dev resources?

4

Good point. The majority of the outstanding debts are from these two vaults as well.

I agree with your suggestion.

2 Likes
5

No dev resources required. It’s just a parameter change.

6

Can I also suggest moving all vaults into close-only mode until AUSD is at 0.95+?

By that I mean adjusting “debt ceiling” to the current outstanding amount (or some other mechanism that would achieve the same thing) .

1 Like
7

Noted. We can do that as well.

8

Could we add more utilities to AUSD? Maybe in alpacaV2 or some new product. For now we can change the fee surely, but the problem is not the fee.

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Do you think we could implement an automatic adjustment for the stability fee depending on the PEG of AUSD?
Something similar to what we do with the borrow curve of ibTokens.

10

It won’t be automatic like borrowing interest rate. But we can create a framework to monitor it periodically (e.g., weekly) and make adjustment as required.

1 Like
11

Literally came back to the forums to suggest this update after noticing the AUSD price!

However, I believe a variable fee that increases as we drop below the peg would be a much more adequate long term solution. As the volatility of AUSD reduces, we could increase the sensitivity of the interest rate function to increase the interest rate more for smaller movements. This will ensure we reduce volatility even further, and hopefully maintain peg in the long term.

I’m not sure how much of a dev team burden that would be so this current proposal is a good band aid fix in the short term to help AUSD achieve peg again.

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Thanks for all the input and feedback. I have created an AIP-11 for this topic.

Any further suggestion and discussion can be made in this thread. [AIP-11] Adjust stability Fee for AUSD to help restore peg

1 Like