Activate the DOLA Peg Stability Module

FiRM
1

Summary

This proposal activates Inverse Finance’s new Peg Stability Module (PSM) for USDS, replacing the deprecated Stabilizer. The PSM allows minting and redemption of DOLA against USDS, with collateral staked in the sUSDS ERC4626 vault. This design provides stronger peg stability, a liquid backstop during market stress, and introduces important upgrades over the previous system.

Background

The DOLA Stabilizer was originally introduced in February 2021 as one of Inverse Finance’s initial products, facilitating a stable 1:1 swap between DOLA and DAI with, at the time, a total capacity of 15M DOLA. It played a crucial role in maintaining the DOLA peg and was a reliable revenue generator for the DAO but became quasi-redundant with the introduction of DOLA AMM Feds and the expansionary DOLA Fed policy. As such, it was deprecated in October, 2023 as a proactive measure to prevent unforeseen scenarios or vulnerabilities that might arise from maintaining a now-redundant contract.

The need for a mechanism that offers immediate DOLA liquidity to liquidators, ensuring orderly and efficient liquidations, has persisted and while the legacy Stabilizer offers basic peg defense it lacks in flexibility and resilience. The PSM has been developed and reviewed over several iterations with Product Working Group contributors, addressing prior shortcomings and adding features for safer long-term use.

Key improvements include:

  • Integration with ERC4626 vaults (initially sUSDS), enabling yield on reserves.
  • Governance-controlled migration to new vaults if needed.
  • Configurable buy/sell fees and profit routing.
  • Controller hooks for future extensions, such as depeg protections.
  • Safeguards against inflation-style attacks, including minimum total supply checks.
  • Modular architecture with separate PSM, PSMFed, and Controller contracts
  • Gas-optimized operations for efficient arbitrage and liquidation support

Deployed contracts:

Specification

This proposal activates the PSM with the following parameters:

  • Buy Fee: 0 bps (1 USDS = 1 DOLA)
  • Sell Fee: 20 bps (1 DOLA = 0.998 USDS)
  • Minimum Total Supply: 100,000 shares to mitigate inflation-style attacks
  • Supply Cap (PSMFed): 10,000,000 DOLA

Given the substantial code updates from the Stabilizer to the PSM and the integration of ERC4626 vaults, the Risk Working Group recommends a guarded launch strategy. The PSM will begin with a conservative supply cap, and expansions will follow a timed schedule introduced by the Fed Chair via expansions. This approach allows the system to gain “lindyness” as it expands, ensuring confidence in the new design while scaling gradually.

On-Chain Actions

  • PSM.setBuyFeeBps = 0
  • PSM.setSellFeeBps = 20
  • PSM.setMinTotalSupply = 100k
  • PSMFed.setSupplyCap = 10M
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