Decrease oracle value of dUSD

Hello defi folks,

for the next voting round I want to discuss with you to decrease the oracle value of dUSD. I know I'm a bit late, the last voting round actually passed. But I got some really great ideas through discussions on reddit and twitter.

Decreasing the value as collateral and loan value will have some advantages over the current situation:

1. Unbacked dUSD will be devauled
2. Almost no influence for backed dUSD

1. Unbacked dUSD will be devauled

While currently all dUSD are worth the same and have the same utility, unbacked dUSD surpress the overall value of dUSD while backed dUSD can't compete in terms of the backing ratio. If we devaluing all dUSD, people who are backing dUSD can mint more dUSD while all unbacked dUSD have only half of the utility like before (later I'll explain how to find the value of 1 dUSD).

2. Almost no influence for backed dUSD

The great advantage is that the backing ratio can be increased by people who are already loan dUSD with DFI or other cryptocurrencies. They have simply a higher vault ratio and can mint almost twice as much as before (at the end of devaluing).

To add even more utility, the collateral value of 1 dUSD can be still at 120%, but not from a base of 1$. The base will vary.

How we can find a price for dUSD?

dUSD main purpose in the dToken ecosystem is for trading stocks, ETFs and other dToken assets. For each asset, we have the oracle price in USD. The dToken system should be balanced all the time. All dUSD should be worth the same as all minted dTokens. Then dUSD is synthetically backed by different assets.

Simplified:

Sum(dUSD) = Sum(Asset1, Asset2, ...)

For the balance sheet it doesn't matter whether you trade dUSD for dFB or dAAPL for dUSD. It's simply a transfer of money into another asset.

But basically it would be enough to devalue dUSD to the dex price.

In detail:

Let's say we have Asset1 (1000 shares) with an oracle price of 100$ and Asset2 (1000 shares) with an oracle price of 50$. It would perfectly fit if the Dex Price is 100 dUSD and 50 dUSD. dUSD would be worth exactly 1$.

Get Maaze’s stories in your inbox

Join Medium for free to get updates from this writer.

Remember me for faster sign in

If the real price of Asset1 increases to 106$ and nobody is trading on the DEX, dUSD will be worth less:

    Shares Asset1: 1000
    DEX price: 100 dUSD
    DEX TVL [dTVL]: 100 * 1000 = 100000 dUSD
    Oracle price: 106$
    Premium [premium]: -5.66%
    Backing ratio [br]: 100%
    Backed TVL [bTVL]: [br] * [dTVL] = 100% * 100000 dUSD = 100000
    rRatio [rR] = [br] * (1+ [premium]) = 100% * 94.34% = 94.34%
    rValuation = [rR] * [bTVL] = 94.34% * 100000 = 94340
    
    Shares Asset2: 1000
    DEX price: 50 dUSD
    Oracle price: 50$
    Premium: 0%
    Backing ratio: 100%
    ...
    
    rRatio = 100%
    rValuation = 50000
    
    dUSD oracle price = (94340 + 50000) / 150000 = 0.9622$
    dUSD collateral value = 0.9622 * 120% = 1.154$
    dUSD loan value = 0.9622

I manually calculated this roughly for almost all pools and came to a price of about 0.53$ for dUSD which is quite accurate to values of coingecko. An exact calculation could be done in a follow up.

Why is dUSD now worth less than before?

This algorithm devaules unbacked dUSD everytime the DEX is imbalanced. While people who have a dUSD loan can loan more dUSD without adding more collateral, buy assets in discount and sell them at oracle price or hold them while unbacked dUSD will not have this advantage.

Reduce the debt fast

This proposal will remove unbacked dUSD faster, because DFI will be valued up against dUSD.

Set the maximum oracle price to 1$

The oracle price is capped to 1$, because we would have reached our goal.

How will be the impact for dStocks?

Stocks will need twice as much dUSD as of now. The advantage of the future swap can only played with dUSD loans.

Stabilization fee

The stabilization fee will be still used. With a devalued dUSD, the fee will probably go down fast, because the backing ratio will increase.

Fleeing from devaluation

The next steps were already approved by the MN. One way for unbacked dUSD would be to dump them onto the market. Next to a lot of burned dUSD thanks to the stabilization fee, this would just burn a lot more dUSD with buy and burn through DFI.

The other way would be to buy dStocks, so dStocks would be in a high premium. This can be used to make some profit with Future Swaps.

Higher APR for backed dUSD

The APR will increase for backed dUSD, because backing entities can mint more dUSD and move the ratio in the pools to their benefit.

Implementation

For a first implementation, the value can be calculated manually. The collateral and loan value can be adjusted by the ticker council in daily 0.005$ steps until the oracle price reaches the dex price.

Conclusion:

I hope everyone understands that all dUSD backers will be supported by this approach and unbacked dUSD will lose a lot of value and impact.

Thank you for reading.