Kolibri Governance Proposal #5 - Increasing The Stability Fee

keefertaylor · March 6, 2021, 3:15am

Summary

The Hover Labs team launched kUSD to mainnet just 16 days ago, and in that time we’ve seen amazing growth and support from the community. We now have over $5M+ total value locked (TVL), and 1M+ kUSD tokens minted, and have a healthy system-wide collateralization ratio of ~582%.

Peg volatility between Mar 4, 8:00AM PST to Mar 5, 8:00PM EST (1.5 days)

That said, as the system has grown, the price of kUSD has generally traded below target, with the past couple days trading on Dexter at an average of $0.88, or ~12% off the price target of $1, implying the system is unbalanced. We’ve seen some volatility as markets are slow to arbitrage, but ultimately this seems to be the current market’s “discovered price” of kUSD, at least in the current environment.

Therefore we believe it’s necessary to raise the stability fee within the Kolibri system in order to help stabilize the system. As other exchanges and more arbitrage bots kick off, the underpinnings of the current market conditions will change, which we’ll also monitor and react to in order to keep the peg stabilized.

Voting

In order to successfully stabilize the system, we need additional data points to understand how this market will react to changes in interest rates. A 1% change could produce a large, or small, change. Without additional data we can not know. However, we are certain that we have enough data to say that the current rate is not producing the desired peg, and so we must make a change.

Given that there are a lot of factors at play regarding stabilizing a system like Kolibri, we’re proposing a signaling vote from the community to determine if this increase should be 0.5%, 1%, or 1.5%. Any of these adjustments will help us to generate more data which will help us make better decisions about the system as a whole.

This vote will be open on the public Kolibri Discord, in the #governance-announcements channel for 24 hours before the winning parameter is packaged and signed by the Hover Labs team and injected into the multi-sig timelock (which has an additional 8 hours before activation). We plan to inject a proposal at, or shortly after 03:00 GMT March 7 (24 hours from this being posted live).

Discussions for this will be happening in the #governance-discussions channel, so please come weigh in on the decision there.

The Hover Labs Team

ZPE1333 · March 6, 2021, 4:00am

This should be decided via a governance token vote, “voting” in discord is totally inappropriate, why even have a blockchain with this type of mentality?

Ryan · March 6, 2021, 4:47am

Hi, I’m also a member of the Hover Labs team.

This should be decided via a governance token vote, “voting” in discord is totally inappropriate, why even have a blockchain with this type of mentality?

So in general I agree.

That said, I’m not sure how familiar you are with the current landscape, but there are no viable DAOs that are ready to go as of yet (i.e. ready to deploy, and security tested enough to guard $5M worth of XTZ), so while we’re working on actively figuring out on-chain governance that’s suitable for the project, we have to find other avenues to engage and gather feedback from the tezos community as a whole. Of course ideally this is a proposal on-chain that’s voted via a gov token, but that’s simply not a viable path today.

Kolibri isn’t made up of just the people sitting in our discord server, it’s people that also hang out here, which is why we’re posting about this change here. This is also just a “signaling vote” - we want to work with the community to navigate these waters together, and a huge part of that is receiving sentiment and feedback about these decisions. Ultimately we still have control over the system (though again, we’re actively working on replacing ourselves with some form of on-chain governance), but we want to both inform and gauge the community with changes like this and ensure that anyone who has used Kolibri also knows this change has been proposed and let us know what they think.

As outlined in the above announcement, the situation right now is such that we need to intervene to restore a stable peg to the system, and we want to do so with as much buy in as possible (or more accurately, as little strong disagreement as possible).

All that aside - if you have a better voting/signaling mechanism that we should use, definitely let us know and we’re happy to consider it.

murbard · March 6, 2021, 2:13pm

My guesstimate is that, given the current market conditions, your stability fee should probably be around 10% / year. Nothing wrong with getting there step by step, but depending on how much of a hassle it is to change it, you might want to take larger steps.

trolleps · March 6, 2021, 2:30pm

You’re being an ass.
99% of governance tokens have nothing to do with governance really
And even though I believe it’s different with kolibri and a token fits here, it takes time to build and formalize it
Right now everybody can speak up

keefertaylor · March 6, 2021, 9:26pm

I concur that it is likely that this increase is too low; however, I don’t have enough data to prove that is anything more than a hypothesis. Making a small move gives us data and justification to make a larger move.

I also think that it is poor optics to 5x the stability fee as our first move. If we’re right, we look like geniuses. If we are wrong, we look like stewards who support 5x-ing the protocol based on gut instinct (which doesn’t particularly imply stability either).

Ryan · March 7, 2021, 1:14am

My guesstimate is that, given the current market conditions, your stability fee should probably be around 10% / year.

Agreed, I suspect we’ll eventually land around there, at least until there’s something to drive demand for kUSD.

Nothing wrong with getting there step by step, but depending on how much of a hassle it is to change it, you might want to take larger steps.

Also agreed, this first adjustment is more to inform the market as a whole that we are off peg and that we’re taking steps to correct it.

Given the vote tallies here it looks like we’re likely to land on 0.5% for this change, and I don’t suspect this will ultimately move the peg by much (if anything), and that we’ll have another governance proposal shortly after this change goes live that will have to be more aggressive.

Initially I think we have some time to work on getting the peg in place but each proposal does take 24 hours to bake, 8 hours to sit in timelock, and then a day or two to see market effects, so if we keep bumping it up by 0.5%, it’ll take us weeks to get the peg to the proper place

Ryan · March 7, 2021, 3:08am

The vote tallies are in, and we’ll be adjusting the stability fee to 2.5%.

We’ve injected this proposal into our timelock, and it should be ready to execute in 8 hours!

Thanks all for the comments/feedback! Hope everyone is having a good weekend

murbard · March 7, 2021, 9:55am

It might not take weeks, kUSD should react both to the change in stability fee but also to the commitment to raise the stability fee when it’s off the peg.