4 - Increase Max Rate on Virtual xy=k DBR Auction

FiRM
1

Increase Max Rate of Virtual xy=k DBR Auction

Summary

Raise the virtual xy=k DBR auction ceiling (maxDbrRatePerYear) from 100,000,000 to 200,000,000 DBR/year. This gives the Fed Chair additional headroom to match FiRM’s rapidly growing debt while remaining within the DAO’s existing issuance policy and guardrails.

Background

  • The virtual xy=k auction continuously sells fresh DBR for DOLA, with proceeds routed via the current SaleHandler (bad-debt repayment + flexible treasury use per governance settings).
  • Since launch in January 2024, the DAO has progressively expanded the auction’s cap as FiRM scaled (5m → 20m → 50m → 100m DBR/year).
  • By late June 2025, FiRM debt had reached record highs, and the auction ceiling was increased to 100m to prevent issuance bottlenecks; the current DBR policy was also outlined in that proposal.

Rationale

FiRM debt growth needs more room. Debt on FiRM has expanded sharply since late 2024, and the auction has frequently operated near its ceiling, constraining how quickly issuance can respond to demand. Doubling the ceiling to 200m DBR/year preserves responsiveness as debt and daily DBR burn continue to set new highs.

Safety is unchanged. Since March 2025, the dynamic-inventory issuance policy has kept DBR inventory in a healthy band (~30–50 days; recently inventory has fallen with debt growth that has not been able to be matched with issuance given the 100m cap). The policy automatically tapers issuance if inventory rises—meaning more headroom does not force issuance; it only removes an artificial cap when conditions warrant. Operator discretion (Fed Chair) remains intact.

Treasury alignment. With the updated SaleHandler, auction proceeds can still satisfy a governance-set minimum for automated bad-debt repayment, with flexibility for liquidity incentives or treasury funding as previously approved; scaling the cap remains aligned with peg stability and revenue goals.

What Changes (and What Doesn’t)

  • Changes: maxDbrRatePerYear increases to 200,000,000.
  • No change: Virtual reserves/curve parameters, SaleHandler settings, INV staking streams, sDOLA auction, or the dynamic-inventory issuance policy. The Fed Chair continues to set the live rate anywhere from 0 up to the new max per policy.

Risks & Mitigations

  • Over-issuance risk: Mitigated by the dynamic-inventory policy (automatic taper) and operator discretion; the higher ceiling only adds headroom.
  • Market impact on DBR: The auction’s pricing and arbitrage behavior remain unchanged; issuance still scales with peg/inventory signals rather than the cap itself.

On-Chain Action

  • Set maxDbrRatePerYear to 200,000,000 (DBR/year).