SIP-10: Decrease Protocol Risk to Depegged Collateral Assets

Governance proposals (discussed) Approved SIPs
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Voting window will begin 8/25/22 at 7:31AM ET and run through 8/28/22 at 7:31AM ET

SIP-10: Decrease Protocol Risk to Depegged Collateral Assets

Author(s): Sperax Team

Reference: N/A

Created: 8/22/22

Labels: #USDs Parameter, #Other

Simple Summary

While accepting various forms of collateral for minting USDs makes minting more accessible, it also has the potential to open USDs up to unforeseen risks. This proposal seeks to minimize these marginal risks to further bolster the resilience of USDs by having the ability to swap collateral in the VaultCore or in strategies which have depegged by more than 2% to the downside and not accept collateral for minting USDs which have depegged by more than 2% to the downside.

Abstract

This proposal seeks to allow the foundation multi-sig to swap collateral from the VaultCore and/or from strategies that have degepped by 2% or more to the downside. The foundation multi-sig will only have the authorization to swap the depegged collateral for another whitelisted collateral. This SIP also proposes a smart contract mechanism that will not accept collateral for minting USDs are depegged by 2+% to the downside.

Motivation

In the unlikely event that collateral accepted by the protocol should depeg, there is rapid action that needs to take place. USDs is 100% collateralized, this is an important feature that helps maintain the $1 peg. Although the currently accepted collaterals are non-volatile, it is not impervious to potential changes in value. Should a portion of the collateral backing USDs depeg, it will alter the collateralization ratio and create uncertainty. Should the stablecoin collateral depeg, a security mechanism can be installed to protect the protocol and its users. By allowing the Foundation multi-sig to swap collateral which has depegged by more than 2% to the downside, risks of a depeg by collateral can be minimized and further damage can be mitigated. This also keeps toxic assets from entering the VaultCore.

Passing this proposal ensures that if this rare event occurs the Foundation will be able to act and according to the very narrow permission, mitigating any potential loss.

Overview

Allowing the Foundation multi-sig to swap out assets which has depegged more than 2% to the downside and build a smart contract mechanism to not accept collateral which has depegged by 2% or more to the downside will protect USDs collateral and peg.

Technical Specification

Pause minting USDs if the collateral being used to mint has depegged by 2% or more to the downside.

Ability for the team to swap collateral in the circumstance that any of the collateral has depegged by more than 2% to the downside, swap only to approved collaterals.

  • Yes
  • No

0 voters

1 Like
2

I hope that the smart contract has the feature integrated which allows us to change the “2%” by another governance vote if/when needed!

2 Likes
3

This seems like a prudent step to take, I support this proposal.

1 Like
4

Agree with @fierydev here. Will make sure to include into the specifications for the contract. Instead of a having a knee jerk reaction to a black swan event it is important for us to stay prepared.

1 Like