Proposal to Begin Issuance of new DBR Tokens

[cryptoharry]

Proposal to Begin Issuance of new DBR Tokens

Summary

This proposal aims to begin the issuance of DBR tokens via streaming to INV depositors in FiRM.

Background

On December 16th, 2022, Inverse Finance DAO launched FiRM, the fixed-rate interest market for borrowing DOLA. On the same day the DAO also launched the DBR, an ERC20 token that represents your right to borrow DOLA on FiRM. 1 DBR is required to borrow 1 DOLA for 1 year, meaning 0.00274 DBR is burnt from a borrowers balance per day per DOLA they’ve borrowed on FiRM. For example, a user who has borrowed 1,000 DOLA will have 2.74 DBR burnt daily (the “burn” happens continuously in the DBR smart contracts memory, rather than once a day!).

A total supply of 4,646,000 DBR was minted at launch and distributed in the following way:

Airdrop - 1,096,000 DBR (566,000 of which still remains unclaimed)

On-chain liquidity - 1,550,000

Future OTC Swap allowance - 2,000,000

No DBR OTC swaps have been carried out since this proposal, however, an additional 420,000 DBR has been put towards on-chain liquidity. The initial swap rate of DBR was 1 DBR to 0.040 DOLA, and due to the constrained supply and usage of FiRM, this has risen to a current swap rate of 1 DBR to 0.050 DOLA as of April 5th 2023, a 25% increase.

Motivation

In order for DOLA borrowing to ramp up on FiRM, the issuance of new DBR into supply is necessary to meet the demand to borrow DOLA. A higher market swap rate for DBR results in a costlier DOLA borrowing transaction. This causes increased friction in the acquisition of new DOLA borrowers and impacts product adoption.

Having new DBR entering circulation will allow the market to readjust more efficiently to an equilibrium that maximizes borrowing of DOLA on FiRM. This will make FiRM more appealing for new and existing users and support the growth and success of Inverse Finance.

Proposed changes

This proposal, if passed, will formalize the DAO’s decision to use streaming to INV depositors on FiRM as the method of new DBR issuance. DBR will become claimable to INV stakers on FiRM, increasing every block proportionally to the number of INV a user has staked relative to the total amount of INV staked. For example, if a wallet owns 1.5% of all INV staked, then it will receive 1.5% of new DBR issuance via streaming.

INV stakers who are streamed DBR are likely to do the following:

• Use the DBR to fund new or existing DOLA borrow positions on FiRM
• Swap the DBR tokens on the market for another crypto token, such as DOLA
• Hold the DBR, waiting to do one of the following above

This is expected to contribute to a more efficient DBR market.

• When the swap rate of DBR is high (when considering DOLA borrowing costs), INV stakers are likely to swap their streamed DBR for other crypto tokens, reducing the market swap rate.
• When the DBR market swap rate is low (when considering DOLA borrowing costs), INV stakers are more likely to use the DBR to borrow DOLA (or hold for the future), meaning the new DBR hitting the market will be constrained, likely leading to an increase in DBR swap rate as new borrowers open positions on FiRM.

INV Escrow Market

A FiRM market for the INV token will need to be launched in order for DBR streaming to begin. At launch, borrowing will be disabled, meaning INV cannot be used as collateral to open new loan positions. Once a suitable price feed has been developed a DAO vote may add in this additional functionality.

The INV Escrow market will function as follows:

• INV deposits will be automatically staked to the xINV market on Frontier, meaning the depositor receives INV staking rewards as usual
• Depositors will retain control over the governance voting power of their INV and the ability to delegate the power as they wish via an on-chain transaction
• Only the depositor will be able to claim any DBR rewards accrued to them

DBR Distributor

The DBR distributor controls the distribution of DBR to INV depositors on FiRM. It operates with the following rules:

• A minimum and maximum reward rate is set and controlled by governance
• The current reward rate is controlled by the operator, which is a role given by governance. The operator can only set a reward rate that is within the min and max parameters set by governance
• The reward rate is the rate of new DBR being issued per second, globally. For example, a reward rate of 1.0 is equivalent to 1 DBR per second, 60 DBR per minute, 3600 DBR per hour, 86,400 DBR per day or 31,536,000 DBR issued per year. The issuance is split among all INV currently deposited on FiRM
• When a user claims DBR, the exact amount is minted to their wallet, adding to the circulating supply of DBR

DBR rewardRate

It is important for governance to appropriately set the min and max DBR reward rate to allow for safe, efficient management by the operator. Governance can also set the current DBR reward rate via adjusting the min and max allowed rate to the same value. This proposal aims to set the operator to the Fed Chair multisig, a 2 of 7 multisig with representation from Risk, Treasury, Product, Growth and Analytics working groups formed in May 2022.

The initial parameters will be set on launch:

• minRewardRate = 0
• maxRewardRate = 0.3171 (10m DBR per year rate)
• Starting rewardRate = 0.1268 (4m DBR per year)

Management of the DBR rewardRate can be simplified by looking at the current amount of DOLA lent out on FiRM and determining whether this quantity should either be maintained, increased or decreased.

• If the current policy is to maintain the amount of DOLA lent out on FiRM, the yearly DBR reward rate should be set roughly to the amount of DOLA lent out. This means that the circulating supply of DBR will be kept at roughly level, with DBR being burnt from supply at roughly the same rate new DBR is issued. For example, if 5m DOLA is lent out on FiRM and this level wants to be maintained, a DBR reward rate of 0.1585 should be set (5m DBR issued per year).
• If the current policy is to expand the amount of DOLA lent out on FiRM from its current level, the yearly DBR reward rate should be set to the target for DOLA. For example, if 5m DOLA is lent out on FiRM currently, but the target is 8m, then the DBR reward rate should be set to 0.2537 (8m DBR issued per year). This will result in more DBR issued than burnt, leading to an expanding supply that should allow for the expansion of DOLA borrowing for the reasons outlined above. In instances where the goal is to expand DOLA borrowing at a rapid rate, the DBR reward rate should be set higher than the DOLA target, and reduced when nearing that target.
• If the current policy is to reduce/contract the amount of DOLA lent out on FiRM, then the DBR reward rate should be set to less than the current quantity of DOLA lent out. The best level is to set the DBR reward rate to the new target for DOLA lent out on FiRM, or lower to increase the speed of the supply contraction.

It should be noted that DOLA borrowing can ramp up a lot faster than it can ramp back down due to the design of FiRM.

On-Chain Actions

• Set operator of DBR distributor to the Fed Chair multisig
• Make DBR distributor a DBR minter
• Set the minRewardRate to the 0.1268
• Set the minRewardRate to 0
• Set the maxRewardRate to 0.3171

[edo]

Edo here from RWG. We’ve spent the time deliberating this proposal internally and i’m satisfied where we’ve ended up. I’ve summarized some of the risk-centric considerations gone into this, particularly around setting the RewardRates, which you can find here. Happy to continue the discussion on this forum or the Discord.

Exciting times ahead!

[patb]

DBR streaming has benefits as a means of distributing revenues back to INV holders, however I believe this proposal as currently written lacks essential analysis and complicates our prospects for repaying bad DOLA debt.

Some additional and hopefully useful background: In addition to bringing DWF to the DAO to sign them as a MM where 100% of the proceeds are used to repay $1MM in bad DOLA debt, I have also made continuous albeit unsuccessful efforts in Q1 to attract investors to a $6MM offering of DBR’s, vesting over 36 months, at a price $0.05 each, with proceeds designated entirely to retiring bad DOLA debt. At time of the launch of FiRM, many here expected DBR price to rise well above the launch price of four cents, making a five cent vested DBR pitch seem like a reasonable idea, despite post-FTX market conditions.

While I can’t attribute our slow progress in this effort to low DBR price alone - raising capital to repay bad debt is an unusual sort of raise in crypto - pitching investors on a deal where DBR’s are priced at a premium to current market prices has so far proven to be a challenge.

This proposal from @cryptoharry, however, deems current DBR prices as too high and seeks to change how and how quickly DBR’s are added to the market. This proposal, if passed, will likely drive DBR prices lower. Since there is a practical limit to how cheaply we can offer vested DBR’s to investors - $6MM in DBR’s already equates to $120MM in pre-sold DOLA borrowing capacity over three years - this proposal effectively removes vested DBR sales as a viable option for retiring bad DOLA debt, leaving the minting of new INV as the most obvious alternative for achieving that objective, which would be a shift in policy from one year ago.

@cryptoharry

No DBR OTC swaps have been carried out since this proposal, however, an additional 420,000 DBR has been put towards on-chain liquidity. The initial swap rate of DBR was 1 DBR to 0.040 DOLA, and due to the constrained supply and usage of FiRM, this has risen to a current swap rate of 1 DBR to 0.050 DOLA as of April 5th 2023, a 25% increase.

In the proposal to launch FiRM, we set DBR pricing ($0.04) after benchmarking rates with competing fixed rate lending protocols. Today, FiRM fixed rates remain below multiple fixed rate lending protocols (see Notional short-term fixed rates, Aave stable rates) and for certain collateral, significantly below competing variable rates (see CRV and gOHM markets on Fraxlend). While borrowers would no doubt prefer a cost of capital that is as close to zero as possible, this proposal includes no data demonstrating how current DBR pricing - equivalent to a ~5% fixed annual interest rate - is mis- or over-priced. Given competitor rates, one could more readily argue that DBR’s are under-priced.

Regarding DBR supply constraints, some add’l data would be helpful. Of the DBR’s claimed in the airdrop, how many have been sold/swapped or added to a liquidity pool? Of the 50% of airdropped DBR’s provided to xINV stakers that remain unclaimed, what data do we have for why they remain unclaimed?

If one of the underlying purposes of this proposal is to lower DBR rates as part of a promotion to stimulate greater adoption of borrowing on FiRM, given the slow takeoff of FiRM to-date this may be a worthwhile, short-term initiative worthy of a separate proposal and a less costly way of testing the hypothesis in this proposal. But in direct discussions with potential FiRM users to date, DBR price has not surfaced as a leading factor behind the current state of loan demand on FiRM.

@cryptoharry

Having new DBR entering circulation will allow the market to readjust more efficiently to an equilibrium that maximizes borrowing of DOLA on FiRM. This will make FiRM more appealing for new and existing users and support the growth and success of Inverse Finance.

Yes. Each additional DBR entering circulation will place downward pressure on DBR price, all things being equal.

@cryptoharry

This proposal, if passed, will formalize the DAO’s decision to use streaming to INV depositors on FiRM

For the sake of clarity, there has been no DAO decision to stream DBR’s. This is the DAO’s first opportunity to decide on this matter.

@cryptoharry

INV stakers who are streamed DBR are likely to do the following:

• Use the DBR to fund new or existing DOLA borrow positions on FiRM
• Swap the DBR tokens on the market for another crypto token, such as DOLA
• Hold the DBR, waiting to do one of the following above

Does our data from the airdrop, where the cost of DBR’s to users was zero, confirm the likelihood of #1 and #2?

@cryptoharry

The INV Escrow market will function as follows:

• INV deposits will be automatically staked to the xINV market on Frontier, meaning the depositor receives INV staking rewards as usual
• Depositors will retain control over the governance voting power of their INV and the ability to delegate the power as they wish via an on-chain transaction
• Only the depositor will be able to claim any DBR rewards accrued to them

Putting the economic benefits to INV holders in some perspective, with a starting reward rate of 4.0MM DBR per year, at current circulating INV supply, each INV staked on FiRM would receive approx 17 DBR per year. Even assuming DBR remains at current price after this proposal, this results in less than one dollar per year per INV. Considering the gas costs and inconvenience of moving INV from Frontier to FiRM, this may work for large holders of INV but smaller wallets may find it uneconomical to move over, thus allowing large wallets to potentially accrue a majority of the value of this proposal. Guessing smaller wallets will only be motivated to move over when borrowing against INV is enabled on FiRM.

@cryptoharry

When a user claims DBR, the exact amount is minted to their wallet, adding to the circulating supply of DBR

So the DBR’s are not being streamed but rather the user must claim them, similar to the airdrop?
Super crude math here: If I hold 100 INV, at a current DBR price of $0.05, all other things being equal, at the starting DBR reward rate that’s 1700 DBR’s per year for me or 142 per month which = $7.10. Even with 1,000 INV, gas costs alone might consume half of the value. Curious how this looks when modeled at higher DBR reward rates combined with lower DBR prices.

DBR rewardRate

It is important for governance to appropriately set the min and max DBR reward rate to allow for safe, efficient management by the operator. Governance can also set the current DBR reward rate via adjusting the min and max allowed rate to the same value. This proposal aims to set the operator to the Fed Chair multisig, a 2 of 7 multisig with representation from Risk, Treasury, Product, Growth and Analytics working groups formed in May 2022.

The initial parameters will be set on launch:

• minRewardRate = 0
• maxRewardRate = 0.3171 (10m DBR per year rate)
• Starting rewardRate = 0.1268 (4m DBR per year)

Management of the DBR rewardRate can be simplified by looking at the current amount of DOLA lent out on FiRM and determining whether this quantity should either be maintained, increased or decreased.

• If the current policy is to maintain the amount of DOLA lent out on FiRM, the yearly DBR reward rate should be set roughly to the amount of DOLA lent out. This means that the circulating supply of DBR will be kept at roughly level, with DBR being burnt from supply at roughly the same rate new DBR is issued. For example, if 5m DOLA is lent out on FiRM and this level wants to be maintained, a DBR reward rate of 0.1585 should be set (5m DBR issued per year).
• If the current policy is to expand the amount of DOLA lent out on FiRM from its current level, the yearly DBR reward rate should be set to the target for DOLA. For example, if 5m DOLA is lent out on FiRM currently, but the target is 8m, then the DBR reward rate should be set to 0.2537 (8m DBR issued per year). This will result in more DBR issued than burnt, leading to an expanding supply that should allow for the expansion of DOLA borrowing for the reasons outlined above. In instances where the goal is to expand DOLA borrowing at a rapid rate, the DBR reward rate should be set higher than the DOLA target, and reduced when nearing that target.

Assuming, for example, bad DOLA debt is retired at approximately the average rate over the past four months what is the maximum target amount of loanable DOLA that the DAO could potentially allow while preserving our ability to maintain peg in Q2-Q3 2023? Is there any rationale for setting the target at any point below the maximum target? This target loan amount seems important to evaluating the economics of this proposal.

@cryptoharry

If the current policy is to reduce/contract the amount of DOLA lent out on FiRM, then the DBR reward rate should be set to less than the current quantity of DOLA lent out. The best level is to set the DBR reward rate to the new target for DOLA lent out on FiRM, or lower to increase the speed of the supply contraction.

If FiRM revenues are effectively diverted directly to xINV stakers, how will the remaining ~$9MM in DOLA bad debt be repaid? Through the minting of new INV? If so, what is the maximum amount of new INV we would mint to repay bad DOLA debt and how does that factor into the per-INV DBR streaming rate for existing INV holders? If the amount of debt to be repaid with newly minted INV is less than $9MM, what is the recommendation for retiring the balance?

Repaying bad DOLA debt is essential to Inverse’s long-term competitiveness. While we announced Revenue Sharing Rewards when we launched Inverse Plus over one year ago, our bad debt situation put that plan on pause and as many are aware we began making regular good faith payments on this last summer and have continued to innovate around resolving this as quickly as possible. This proposal effectively re-starts something similar to RSR’s without laying out a clear strategy for at least paying down a significant portion of the remaining bad debt, much less all of it.

If the implication is that pitching investors on vesting DBR’s as a means for repaying bad debt is the wrog approach, this proposal should at least include a proposed alternative(s) before killing that option.

One question we have received centers around our policy for minting new DBR’s. Uncertainty around future DBR supplies is something we’ve discussed with both users in the DAO as well as prospective investors and our response today can be seen as … ambiguous. One thing I like about this proposal is it begins to systematize this process, though it optimizes for maximizing DOLA loan volume, not revenue or profitability. To an investor, this looks like a DBR issuance policy where DBR price will increasingly approach zero, minimizing our likelihood of finding takers for that deal.

The DAO should also be able to view this proposal in the context of an operating plan that shows forecasted revenues and expenses for the next 1-2 years that includes a clear plan for repaying bad debt. R3Gen is in the process of driving this forward and we should see output soon, but this proposal raises important questions like how will DAO operating expenses, including the funding of new product development initiatives, audits, risk management, etc. be financed. Similar to spending on liquidity, if the answer is minting more INV, we should all have visibility into that.

Also, I would suggest adding some clarity to the forecasted impact of this proposal on xINV anti-dilution/staking rewards. This policy has maintained INV market cap reasonably well over the past year despite myriad challenges.

Just to reiterate what we’ve discussed previously - I think DBR streaming is a potentially elegant solution to a series of business problems for the DAO. However, we all agree that our top business problem as a DAO is bad DOLA debt and this should be prioritized in any discussion of revenue sharing and should be a central part of the next version of this proposal.

[mason]

Overall I think the simplicity of the proposed mechanism is a massive leap forward for Inverse Finance.

It achieves two major things:

1. Giving INV calculable value
2. Defining how issuance of DBR works

Giving INV calculable value
This is pretty straightforward, if we assume that staking of INV stays flat, the initial APY earned in DBR would be ~2.79% with a ~1.45% rate being the result of a 100% staked supply. At the upper limit with the initially proposed maxRewardRate, stakers would see ~7% and ~3.6% respectively depending on total staked percentage.

I will leave it to others to further this (through a DCF, dividend yield, or otherwise), but suffice it to say that given a system where users have to spend DBR for loan interest and DBR is issued to INV holders only, increased loan demand will lead to increased INV demand.

DBR Definable Value

There are a number of ways market participants may interact with DBR:

@cryptoharry

INV stakers who are streamed DBR are likely to do the following:

• Use the DBR to fund new or existing DOLA borrow positions on FiRM
• Swap the DBR tokens on the market for another crypto token, such as DOLA
• Hold the DBR, waiting to do one of the following above

Each situation, respectively, might be expected to have the following outcome:

• DBR flat; TVL up or flat
• DBR down; Attractiveness of borrowing up, eventual TVL increase
• DBR up; TVL down in short term

The reflexive situation is the most interesting, ie if each INV is earning ~25 DBR / year and DBR issuance is expansionary then this could lead to interest free borrowing of 25 DOLA on around $61 worth of fresh TVL in the next year.

Open Questions:

• rewardRate is ~4.6X DBR burn, what factors influenced this growth target?
• maxRewardRate is ~11.6X DBR burn, what factors influenced this near term upside growth multiple?
• How are contributors thinking about systemizing periodic review of issuance rate? Ie will there be a “projected future issuance rate” view in transparency? Will the policy goals of Inverse be clear to all users in an easily accessible way?
• How are contributors thinking about the move to dynamic adjustment of issuance rates? Matching burn rate seems easy, but deciding how to expand or contract not so straightforward. Perhaps historical fed policy decisions can influence this.

Thoughts regarding others comments:

@patb

I have also made continuous albeit unsuccessful efforts in Q1 to attract investors to a $6MM offering of DBR’s

Difficulty selling means either 1) no demand 2) mis-priced. Until the way DBR is issued is clear, would expect no interest in OTC.

@patb

This proposal from @cryptoharry, however, deems current DBR prices as too high and seeks to change how and how quickly DBR’s are added to the market. This proposal, if passed, will likely drive DBR prices lower.

If DBRs aren’t selling OTC then they are mis-priced. Maybe fair price is higher than current, but the only way for natural market dynamics to correctly price it is if there is a natural market, not a centrally mete’d method of selling as in the situation where OTC deals are completed.

@patb

this proposal includes no data demonstrating how current DBR pricing - equivalent to a ~5% fixed annual interest rate - is mis- or over-priced. Given competitor rates, one could more readily argue that DBR’s are under-priced.

The simple fact that FiRM isn’t pushing the upper limit of utilization says everything. Again, maybe market forces bring DBR lower before they bring it higher, if it does go low it’ll attract people, that’ll drive price back up. But again, none of this happens if market forces/issuance policies aren’t clear.

@patb

Of the DBR’s claimed in the airdrop, how many have been sold/swapped or added to a liquidity pool? Of the 50% of airdropped DBR’s provided to xINV stakers that remain unclaimed, what data do we have for why they remain unclaimed?

Would be interested in seeing data here, but there are less than 30 borrowers in FiRM and DBR price has risen since launch despite low number of users. DBR is a utility token which is why the mechanism of paying it to INV stakers is so clean, it’s functionally real yield. In an efficient market (which I’ll admit we are not in) DBR floor price can only ever be set by natural market forces.

@patb

with a starting reward rate of 4.0MM DBR per year, at current circulating INV supply, each INV staked on FiRM would receive approx 17 DBR per year. Even assuming DBR remains at current price after this proposal, this results in less than one dollar per year per INV. Considering the gas costs and inconvenience of moving INV from Frontier to FiRM, this may work for large holders of INV but smaller wallets may find it uneconomical

Agree with Pat here and would love to see a bit more thinking around this. In my mind, creating an additional layered contract might be desirable. Ie user would re-stake their staked INV and could elect to auto-sell, to use it to manage their own loans, LP, etc. even if there were just auto-sell and auto-use for loan options, this would be of economic benefit to users and the protocol could use it as part of policy management.

@patb

Assuming, for example, bad DOLA debt is retired at approximately the average rate over the past four months what is the maximum target amount of loanable DOLA that the DAO could potentially allow while preserving our ability to maintain peg in Q2-Q3 2023? Is there any rationale for setting the target at any point below the maximum target? This target loan amount seems important to evaluating the economics of this proposal.

If I had to bet I’d say that looking at the feds: LP size, trailing volume, and rolling std deviation of peg would be the most effective move here.

@patb

If FiRM revenues are effectively diverted directly to xINV stakers, how will the remaining ~$9MM in DOLA bad debt be repaid? Through the minting of new INV? If so, what is the maximum amount of new INV we would mint to repay bad DOLA debt and how does that factor into the per-INV DBR streaming rate for existing INV holders? If the amount of debt to be repaid with newly minted INV is less than $9MM, what is the recommendation for retiring the balance?

We’re worrying about OTC deals for which there is already no demand. The only way to create demand for a token is in the free market, currently I have no clue if DBR will get mass minted tomorrow or what, I personally hold some because I see the daily burn, but it’s trust that has me not worried about Inverse max minting DBR. DBR issuance to INV holders is the ultimate logical expression of governance and revenue share, DBR becomes much more attractive when its issuance is clear, INV becomes more attractive when its utility is clear.

The DAO has made ~$2600 off of DBR so far or .08% of total revenue ever, this was purely off of replenishment for which there is a draft proposal currently to reduce deficit APR from 1000% to 50% which would turn this into ~$130 for the DAO. ie in current state, making $9MM off replenishments would require $520M of TVL to go into deficit; with new proposed parameters, ~$10.3B of TVL would need to go into deficit. Even with OTC deals, the increased DOLA supply resultant from direct sales of DBR will need to be managed. Better to focus on long term business flywheel than the immediate pay down of debt (for which a portion of AMM fed revenue could easily already be diverted).

@patb

The DAO should also be able to view this proposal in the context of an operating plan that shows forecasted revenues and expenses for the next 1-2 years that includes a clear plan for repaying bad debt. R3Gen is in the process of driving this forward and we should see output soon, but this proposal raises important questions like how will DAO operating expenses, including the funding of new product development initiatives, audits, risk management, etc. be financed. Similar to spending on liquidity, if the answer is minting more INV, we should all have visibility into that.

Want to see this as well, but because it’s generally needed, not because it overtly affects this proposal.

@patb

Also, I would suggest adding some clarity to the forecasted impact of this proposal on xINV anti-dilution/staking rewards. This policy has maintained INV market cap reasonably well over the past year despite myriad challenges.

Maybe reduce INV APY to start by the gained DBR apr to start?

High Level

• DBR needs to be priced by the market, carry trade arbitrage should never allow it to fall to zero

• Issuance of DBR to INV stakers drives real value to holding INV and makes stakers into “mini feds” who will each make a decision based on the market

• Flywheels are good, and this is one of the cleanest I’ve ever seen. Props to everyone who worked on this, props to Pat for great questions and thought exercises above, and props to everyone who takes the time to share their honest thoughts on this!

[edo]

@mason

Open Questions:

• rewardRate is ~4.6X DBR burn, what factors influenced this growth target?
• maxRewardRate is ~11.6X DBR burn, what factors influenced this near term upside growth multiple?
• How are contributors thinking about systemizing periodic review of issuance rate? Ie will there be a “projected future issuance rate” view in transparency? Will the policy goals of Inverse be clear to all users in an easily accessible way?
• How are contributors thinking about the move to dynamic adjustment of issuance rates? Matching burn rate seems easy, but deciding how to expand or contract not so straightforward. Perhaps historical fed policy decisions can influence this.

My opinions here…

1. Factors influencing this rate include:

• Attracting more INV stakers (first impressions matter)
• Expedite the process for which market forces will find a “fair price” for DBR (more DBR, more holders)
• Boost overall FiRM adoption (amongst INV stakers, or perhaps opportunists monitoring a DBR market with greater price swings)
• Provide a competitive advantage over other platforms

The aim is to balance the growth of the platform with the token issuance rate, ensuring that the DBR token’s value can be priced by more “natural” market forces (perhaps operate in a band driven by supply/demand) and that INV stakers find it worthwhile to stake their tokens.

2. The maxRewardRate aims to accommodate the platform’s potential growth trajectory while doing so in a safe manner. This parameter can always be adjusted via a new proposal passing through governance. If FiRM adoption grows significantly, we can adapt (it only takes 5 days).

3. Off the top of my head some factors we’d look at are DBR issuance/burn rate, platform adoption (FiRM TVL, users, market breakdown), $DBR value, $INV value, INV staked %. Alien just put out a DBR annualized burn rate over time chart on the DBR page of the transparency portal and i’m sure he has plenty more ideas for users and speculators to understand the platform’s health and direction. The policy goals of Inverse should be well-documented and easily accessible, we strive to achieve this every day.

4. Implementing a dynamic adjustment mechanism that automatically adjusts the parameters based on predefined conditions or market indicators is a great idea and would help maintain an efficient DBR market. This mechanism could consider factors such as DOLA borrowing levels, DBR token supply, supply growth/burn rate, and market liquidity when adjusting the parameters. However this isn’t in the roadmap for now though it should be considered if/when the DAO is looking to further decentralize.

[mason]

@edo

The aim is to balance the growth of the platform with the token issuance rate, ensuring that the DBR token’s value can be priced by more “natural” market forces (perhaps operate in a band driven by supply/demand) and that INV stakers find it worthwhile to stake their tokens.

Yea I couldn’t help but think about how what Olympus is doing with RBS could be applicable.

@edo

Alien just put out a DBR annualized burn rate over time chart on the DBR page of the transparency portal and i’m sure he has plenty more ideas for users and speculators to understand the platform’s health and direction.

Great to see this in a dashboard.

Understand that there are many things out of scope currently, but excited to see that thought is being done on what to build next on top of what looks to be a pretty fantastic mechanism on a lot of fronts.

[NacreousCloud]

Very well written proposal and well argued. Pretty bullish about the concept of DBR streaming. This gives a whole new dimension to FiRM and $INV becomes a real yield asset.

For me there are a few things that stand out:

Innovative and uniqueness

FiRM is not the only fixed rate protocol, but is already unique in it’s kind with a DBR market. DBR streaming will amplify this ,distinguish FiRM more from other fixed rate protocols and give $INV real yield characteristics. This does not mean FiRM will directly gain traction relative to competition, many other factors that influence that, but it does give a good shot at a viable future. It is important to stand out in defi. It takes time and patience, particularly in the case of Inverse, but the market does appreciate innovation and uniqueness.

Potential growth

Realizing usage on mainnet is a huge challenge currently. Many mainnet defi users migrated to L2s. They farm stables, farm LSD tokens, borrow tokens and do perps on either Arbitrum or Optimism etc.Those users are unlikely to return to mainnet and interact with FiRM. The users that remain on mainnet are those with larger pockets and DAO’s. DBR streaming (on mainnet) would not be viable to smaller INV stakers, but I would argue that is a non issue as those users are unlikely to interact with FiRM (on mainnet) after all for the time being. On the contrary, DBR streaming is interesting for those that seek out to borrow a significant amount on FiRM and/or have significant stake in INV. In terms of potential of growth, we might not see many users in absolute count. However, acquiring INV and borrowing on FiRM might becomes interesting for larger users and DAO’s.

@patb

this proposal effectively removes vested DBR sales as a viable option for retiring bad DOLA debt, leaving the minting of new INV as the most obvious alternative for achieving that objective, which would be a shift in policy from one year ago.

Growth of inverse products and $INV appreciation are the most viable way of having a shot at reducing significant bad debt. DOLA growth is going well, but FiRM and $INV price appreciation are lacking. Even if there were DBR otc sales, it won’t significant reduce ~$9MM bad debt. I would argue there is much more potential and need for increasing FiRM adoption and $INV price appreciation to reduce bad debt. DBR streaming is a good step forward for both.

While I am excited about this proposal there are some things to consider:

Gas fees

@patb

So the DBR’s are not being streamed but rather the user must claim them, similar to the airdrop?
Super crude math here: If I hold 100 INV, at a current DBR price of $0.05, all other things being equal, at the starting DBR reward rate that’s 1700 DBR’s per year for me or 142 per month which = $7.10. Even with 1,000 INV, gas costs alone might consume half of the value. Curious how this looks when modeled at higher DBR reward rates combined with lower DBR prices.

As much as I would like otherwise I do agree that gas fees will be an issue for many holders. Gas might come down a bit, but the era of cheap ETH transactions on mainnet will not come back. However, most holders are not very likely to interact at all, because there a much better gas efficient options for yielding assets and borrowing on L2s. What remains important is ensuring that it is profitable for the larger wallets despite gas costs, which might even be challenging with current gas prices.

Assumed dynamics and DBR market efficiency

@cryptoharry

INV stakers who are streamed DBR are likely to do the following:

• Use the DBR to fund new or existing DOLA borrow positions on FiRM
• Swap the DBR tokens on the market for another crypto token, such as DOLA
• Hold the DBR, waiting to do one of the following above

This is expected to contribute to a more efficient DBR market.

• When the swap rate of DBR is high (when considering DOLA borrowing costs), INV stakers are likely to swap their streamed DBR for other crypto tokens, reducing the market swap rate.
• When the DBR market swap rate is low (when considering DOLA borrowing costs), INV stakers are more likely to use the DBR to borrow DOLA (or hold for the future), meaning the new DBR hitting the market will be constrained, likely leading to an increase in DBR swap rate as new borrowers open positions on FiRM.

I do think the first of the above assumptions regarding INV stakers is not likely. From the current INV stakers only a few (non team) stakers have used the airdrop to borrow on FiRM. For those that want to borrow against their INV position I assume they will use the DBR anyway, regardless the swap rate. Furthermore there is a limit to what INV stakers will borrow. However, although these assumptions might not work out as described the market could still be efficient if we could see increasing borrowing demand from non stakers and I am very interested to see how this play out. If demand keeps lacking price goes down to a level where it is not profitable to sell for INV stakers.

DBR on L2’s and other chains

I think it is important to anticipate FiRM deployment on l2s and think about if it is desirable to implement DBR streaming on L2s simultaneously, solely or rather not. How could this work, what will be the impact on the separate DBR markets and what are the difficulties? I am not sure if it is necessary to include this in the proposal, but I do like to see this discussed and considered.