Adjust sDOLA Auction and DSA Parameters - 2

FiRM
1

Adjust sDOLA Auction and DSA Parameters

Summary

This proposal refines the economic parameters that govern the DOLA Savings Account (DSA) and the sDOLA–DBR XY-K auction. The goal is to:

  • capture a healthier spread for the DAO now that sDOLA has found clear product–market fit (PMF);
  • give the DSA headroom to scale into new opportunities;
  • deepen the auction just enough to increase sDOLA APY and arbitrage efficiency without crowding out open-market DBR trading.

Background

Since launching in February 2024, sDOLA and the DSA have returned >$764 k to depositors. TVL has grown to >$33 m, consistently placing sDOLA among the highest-yielding stablecoins on Ethereum.

sDOLA utility spans four pillars:

  1. Yield Holders
  • sDOLA is now consistently one of the highest yield-bearing stablecoins. This has attracted an increasing number of wallets that hold sDOLA purely for its raw yield.
  1. Curve Pools

  • Stableswap-ng pools handle sDOLA yield, fully returning it to liquidity providers. This makes sDOLA a compelling stablecoin for other issuers to pair with due to its constant yield. Current pairings include:

  • sDOLA/scrvUSD: ~$3.84M TVL

  • sDOLA/alUSD: ~$3.95M TVL

  • sDOLA/reUSD: ~$3.41M TVL

  1. Lending Markets

  • sDOLA as collateral in lending markets allows users to leverage the spread between sDOLA yield and borrowing costs. It also enables leveraging DOLA during depegs for potential profits upon repegging. Key metrics:

  • Curve Lend (Market 1 and 2): ~$24.95M sDOLA collateral with ~$23.87M crvUSD borrowed

  1. Yield Trading

  • sDOLA is used as a yield trading instrument, allowing users to take long (via fixing) or short positions on the yield

  • Spectra: ~$1.2M TVL

  • Pendle: ~$0.7M TVL

sDOLA benefits the DAO by driving DOLA purchases from the open market. This creates equivalent lending capacity, which, when utilized, results in more DBR burn than DBR issuance spent.

Proposed Adjustments

1. DSA Parameters

Max DBR per DOLA per Year

  • Current: 0.95

  • Proposed: 0.95 (unchanged)

  • Rationale: In order to help promote the initial growth of sDOLA, the DAO opted for an extremely thin margin on sDOLA earnings. In order to continue the current growth momentum of sDOLA, we are not proposing to increase the current margin for the DAO. It should be noted that this will need to be done eventually, in order to allow for sustainable growth.

Max Yearly Reward Budget

  • Current: 30M DBR/year

  • Proposed: 60M DBR/year

  • Rationale: Doubling the yearly reward budget ensures sDOLA has sufficient room to scale into emerging opportunities at the proposed max DBR rate, fully capitalizing on its potential.

2. sDOLA Auction

Objective:

The recent influx of sDOLA deposits presents an opportunity to deepen the auction while maintaining profitable arbitrage opportunities for participants. A deeper auction tightens the spread between the auction sell price and the DBR market price, reducing gas cost barriers and increasing sDOLA APY.

Recommended Actions:

  1. Increase dbrReserve to ~1.2M DBR:
  • Gradually allocate 800K DBR into the sDOLA contract over 7 days post-proposal approval, via the TWG. This staggered approach aligns with the K value ramp-up, ensuring arbitrage profitability remains stable.
  1. Increase K Value:

  • Current: 1.26E+46

  • Proposed: 1.12E+47

  • Rationale: Deepening the auction balances sDOLA APY stability while ensuring the open market remains the primary venue for DBR trading. Excessive depth could cause prolonged revenue dips if DBR prices fall sharply, so maintaining moderation is crucial.

Yield and DAO-Profit Impact

Assumes current DSA deposits = 34,223,692 DOLA

The first entry is showing the current as-is stats for DSA (no changes)

maxYearly RewardBudget maxRewardPer DolaMantissa Yearly DBR distributed DBR per DOLA (annualized) DSA APR Annualized DAO Profit $
30,000,000 0.95 30,000,000 0.877 6.79% $327,336
60,000,000 0.95 32,512,507 0.95 7.36% $132,617
60,000,000 0.9 30,801,323 0.90 6.98% $265,234
60,000,000 0.85 29,090,138 0.85 6.59% $397,850
60,000,000 0.8 27,378,954 0.80 6.20% $530,467

The scenarios make it clear that the proposal compresses the DAO’s annual-profit margin. That trade-off is deliberate: richer incentives keep sDOLA among the top-yield stablecoins, supercharging TVL growth and network effects. Once that growth plateau is reached, the DAO retains full flexibility to widen the margin and restore a higher profit share.

sDOLA Auction Impact

After the 7 days ramp of the k value, the auction depth will be increased by roughly 3x from where it is prior to the proposal. On trades, this has the following impact:

534×687 10 KB

Net effect: arbitrageurs clear more DBR per transaction at spreads much closer to the spot market, so (a) gas cost per $1000 arb falls, and (b) sDOLA APY nudges higher because the reserve empties more slowly.

When increasing the depth of the auction, there are 2 main considerations:

  • The time taken for the auction price to catch up to the market price after a large price decrease
  • The auction price fall speed if sDOLA’s TVL falls significantly from today

The downside of having an auction that is too deep, is the yield of sDOLA being more volatile, which potentially, for some weeks to be extremely low if either of the above happens. It is easier for the DAO to deepen the auction than it is to reduce the depth, as doing this requires many DBRs being sold on the market as K ramps down.

Please see the following graphs demonstrating the rate of price decrease of the auction under the new parameters:

401×278 21.8 KB
401×278 21.9 KB
401×278 20.7 KB

Conclusion

By doubling the DSA reward ceiling and modestly deepening the sDOLA auction, we lift APY, preserve market-leading yield, and give the protocol room to grow. The trade-off is a temporary, controlled squeeze on DAO profit today for a larger, more sustainable revenue base tomorrow.

—

On Chain Actions

  • setMaxYearlyRewardBudget to 60m
  • setTargetK to 1.12E+47