Increase Max Rate on Virtual xy=k DBR Auction #2

FiRM
1

Increase Max Rate on Virtual xy=k DBR Auction

Summary

This proposal seeks to increase the maximum DBR rate per year that the Fed Chair can set for the virtual xy=k DBR auction. The current maximum is 20m/year, and this proposal seeks to increase this rate to 50m/year.

Background

The virtual xy=k DBR auction, launched in January, is a contract that continuously sells DBR for DOLA, with the DOLA proceeds being used to pay down DOLA bad debt. The auction launched with a max rate of 5m, with a proposal in March to increase this to 20m. Since the auction’s first organic sale on Feb 3rd, it has raised over 550k DOLA from DBR sales. As the DBR burn rate on FiRM scales up, it is possible to scale up the issuance of DBR too, which is currently done via the streaming to INV stakers, the sDOLA auction, and the virtual xy=k DBR auction. The auction operator, currently held by the Fed Chair multisig, has the ability to adjust the DBR rate within the auction between 0 and the governance set maximum.

Objective

Recently, the Fed Chair has adopted a more aggressive DBR issuance policy to allow the market price of DBR to adjust more efficiently and quickly to the correct rate in response to changes in the demand to borrow and hold the DOLA stablecoin. When the demand to hold DOLA is significantly higher than the demand to borrow DOLA (evidenced by a larger portion of DOLA backing coming from AMM Feds rather than the FiRM Fed), total DBR issuance will be targeted to exceed the current burn rate. Conversely, when AMM Fed DOLA backing falls below targets, DBR issuance will be reduced to below the current burn rate.

Key Benefits

  1. Enhanced Flexibility: Increasing the maximum DBR rate to 50 million per year will allow the Fed Chair to respond more dynamically to market conditions.
  2. Efficient Price Adjustment: A higher maximum rate supports quicker and more efficient market price adjustments for DBR, aligning it with current demand dynamics.
  3. Improved Debt Repayment: Higher DBR issuance can potentially lead to increased DOLA proceeds, thereby accelerating the repayment of DOLA bad debt.
  4. Support for Growing Demand: As demand for DOLA grows, the increased issuance capability ensures that DBR supply can meet market needs without unnecessary constraints.

On-Chain Action

  • Set maxDbrRatePerYear to 50m
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