wanted to get the thoughts from the community on creating more liquidity for the $LUSD/$BUSD LP.
the DAO has considerable funds that could be used to build more $LUSD. we could sell some $LUSD for $BUSD and create LP tokens and help increase the total liquidity for these pairs. more liquidity would help the price impact of $LUSD for any transactions.
what do you think about using DAO funds to build more $LUSD? i think we would want to build at a very conservative p-ratio, 1000 or higher. the DAO would not enter the VAULT, so we wouldn’t need to be concerned about the DAO diluting those rewards.
the DAO could potentially use a smaller percentage (<25%) of $LUSD to build a portfolio that mirrors the debt pool. this is probably another conversation, but i think we could set up a system where the DAO balances their portfolio around the composition of the debt pool.
I like your idea. how much LUSD would be used for that?. and how big is the overall DAO funds?
Yeah, i found it. So DAO funds are 1,5 bil Lina tokens.
So i would suggest 100 mil lina tokens to build Lusd.
hey,
nice to see some activity over here! I think the history of lUSD peg shows clearly, that the liquidation mechanism works successfully for larger timeframes and shifts / resets the peg on large price movements. But the deviation from the dollar is way to high for calling lUSD a stable coin.
In my opionion there have to be a second instance of short term price pegging mechanism in place to fix it. As stated before the pure increase of liquidity of the LP tokens will help to stabilize drift by low volume trading. But it will make it harder to fight large drifts because the liquidtiy to create counter price preasure will be very high. I would prefer the approach @Captain_Trips_Linear mentioned without increasing the LP tokens, because it will be less expensive to make aditional adjustments in the future and the entities who enter will have to pay the price for entering. The DAO funds can do the arbitrage.
But I don’t get, why there will be no such implementation like the Peg Protection Pot described earlier. It would have some strong advantages over adjusting peg through the DAO voting manually from time to time and it is not to hard to implement. The long term goal should be an automated pegging system, which puts the supply and demand of lUSD on the price of LINA IMO. There are clearly risks of frontrunning attacks, but there are also ways to use the attemps to encourage frontrunners to do the arbitrage for us.
I think a smaller percentage of that 1.5 LINA billion would suffice to hold that peg. This should be our number one priority right now as it doesn’t look pretty to outside investors seeing an important asset of our protocol being unstable! It’s hard to market something that isn’t running at full capacity!
First of all thank you all for supporting the ℓIP for the settlement button! I hope this can be implemented very soon.
But back to this topic. I was surprised by the new dApp at https://debt-terminator.linear.finance. This brings a new situation to the ℓUSD pegging issue. The debt terminator is a great new feature where the community can participate in maintaining the peg.
Great Job Team!
Now I understand why the peg protection pot was not implemented in the first place. As long as there are many outstanding liquidations the artificial increasing of ℓUSD could lead to sell pressure on LINA because liquidators would liquidate a lot of positions and get LINA at a 10% discount which could be sold for an easy profit. This is not possible at the moment because ℓUSD is above 1.10$ and therefore the situation makes it unprofitable.
Any ideas how we can get the ℓUSD down without triggering mass liquidations? A $LINA price pump would be very helpful!
Don’t know if it helps to increase the pool liquidity at this point. We should rethink it in this context. Maybe we have to wait until the peg is back in balance and hope for some better market conditions in the near future. Wallets at risk could see it as a chance to prevent liquidation and buy $LINA to bring their ratio back above 500.
One thing I want to point out. With the debt terminator in place the ℓUSD is well protected against market crashes and things like the UST fail are very unlikely on this platform. There is a serious need for algorithmic stable coins, I hope we can profit from this point. But therefore we have to find a balance mechanism between market extremes where ℓUSD tends to go in the different direction extreme.
what would be the ethics of using the DAO funds to liquidate accounts, maintain a healthy and extremely conservative p-ratio and contribute to the $BUSD/$LUSD LP?
I really have no clue about it from an ethical standpoint. I think it really depends on the view of the liquidated accounts. On one hand they will loose the 15% fine on top of what the price action did in the last year. On the other hand the rest of their tokens is locked away and they cannot access it until they got liquidated or they come back above 500 pratio. But we have to keep in mind it’s possible, that they dump the rest of their LINA tokens at the point of liquidation. With the current lUSD price level liquidation doesn’t make sense from a profit oriented view and it can bring trouble to healthier accounts if the lUSD price further rises.
For me it would be better if we encourage the accounts to raise funds to prevent liquidation. I thought a lot about how to bring the lUSD value down to one dollar. But as long as there are as many outstanding liquidations it could be hard to get to the point under current market conditions. From my view one
bit risky possibility would be to lower the target pratio for a certain amount of time. This will increase the lUSD supply and lower the barrier of preventing liquidation. The current price of lUSD would allow this move.
I don’t think any kind of spending $LINA via DAO funds can help at the moment, in the end it would increase supply. Unless someone knows Elon and can get him to tweet about us with money.
been thinking about this a bit. it’s important to have a functional product. that includes a stable peg and that also includes liquidation when necessary. having a bunch of accounts just sitting in limbo looks bad and doesn’t really do people any favors.
looks like we need approx $75k LUSD to balance out the LP
if the DAO uses funds to responsibly build LUSD, then employs those funds to help reduce slippage on this LP,
the DAO approach could be:
we build LUSD responsibility, maintaining a p-ratio of 1000 or higher
we match the composition of the debt pool and rebalance once a month
in rebalance we also respond to the state of the LUSD peg - selling or adding as necessary
we use LUSD to liquidate users and further increase DAO p-ratio
Yes you are totally right. The peg is out of control and we are between a rock and a hard place to fix it. A few worst case scenarios for your suggestion. Don’t say it will happen but I see a possibility.
Let’s say we build the 75k lUSD for balancing the pool. Some entities will immediately start to liquidate accounts and dump LINA for lUSD to keep their debt in control. Additionally the now staked LINA could get unstaked after liquidation and also dumped on the market.
We will have a lot of buy pressure on the lUSD and we will be in the same situation again in an amount of time when DAO could start the process again and again until the open liquidations came to an end. I didn’t make any calculations on it but the process could be very long and painful especially for the LINA token price if there is no external demand on LINA.
We could create this demand for LINA by market buying for the cheap BUSD we get for balancing the pancake pool. But this would further increase the LINA holding for the DAO and could make users nervous about the amount of tokens hold by the DAO treasury. On the other hand this will reduce the LINA in circulation by serious amount which would be highly anticipated by most Investors.
By staking this huge amount of LINA the DAO fund will also get a high amount of staking rewards especially if we repeat this process until the liquidations end. Again on one hand this could be healthy because it will stay there until the DAO decides to spend it.
I don’t see a huge problem with maintaining the pratio at a high level as long as we have enough LINA for staking. This will not affect the amount of rewards the DAO will get because this will depend of the amount of debt the DAO will hold.
I see a problem if peg again falls below 1$. What will the DAO decide to do in this case. We could start to sell LINA for lUSD and lower the treasuries debt but this could kill the previous uptrend which is needed to bring the peg below 1$.
IMO this could be a way to peg lUSD carefully, but there are always frontrun risks we have to keep in mind which can lead to a unwanted drain cascades.
Only some thoughts. Hope to hear others opinion about it.
Best regards!
