Proposal to Enable FiRM Market Coverage for jrDOLA

FiRM
1

Summary

This proposal authorizes the Junior Tranche (jrDOLA) system to provide bad debt coverage for existing FiRM lending markets. All markets will be added simultaneously to the FiRMSlashingModule, subject to the mandatory activation delay period for security. This proposal is designed to execute in parallel with the jrDOLA Launch Proposal, ensuring the insurance mechanism becomes operational immediately upon both proposals passing.

Background

The jrDOLA Launch Proposal configures the core parameters and reward budget for the Junior Tranche system. However, that proposal intentionally excludes FiRM market additions to maintain clean separation of concerns:

  • Launch Proposal: Sets operational parameters, deploys infrastructure, allocates DBR budget
  • This Proposal: Connects jrDOLA to actual FiRM markets requiring bad debt protection

As of this proposal, FiRM operates 20 active lending markets across diverse collateral types. Each market represents potential bad debt exposure that currently impacts DOLA backing directly. jrDOLA creates a buffer layer, absorbing losses before they affect core protocol reserves.

Coverage Strategy

Rationale for comprehensive coverage:

  1. Simplicity: Depositors don’t need to evaluate which markets are/aren’t covered. Coverage is uniform across FiRM, making the value proposition clear.
  2. Fair treatment: All FiRM markets benefit from DOLA liquidity. All markets should contribute to (and benefit from) bad debt insurance.
  3. Administrative efficiency: Avoid ongoing governance overhead of individual market evaluations. The activation delay and guardian cancellation provide sufficient safeguards.

Each market added through this and any future proposal enters a 7-day timelock period before jrDOLA begins covering its bad debt. While in this initiation stage this serves little purpose, in general this delay is designed to:

  • Gives guardian multisig time to cancel problematic additions if discovered
  • Prevents zero-day exploits where attacker adds market and immediately creates bad debt
  • Provides buffer for depositors to exit if they disagree with market additions

If and when a FiRM position in a covered market becomes insolvent:

  1. Detection: Anyone observes position where debt > collateral value (via oracles)
  2. Eligibility check:
  • Market is active in FiRMSlashingModule (activation delay passed)
  • Position collateral value < maxCollateralValue (prevents oracle manipulation)
  • Position debt > minDebt (prevents dust spam)
  1. Execution: Permissionless call to slash(market, borrower)
  2. Repayment: jrDOLA vault repays bad debt to FiRM market
  3. Loss socialization: All jrDOLA depositors absorb loss pro-rata (share value decreases equally)

Markets to be Added

The following FiRM markets will be added to jrDOLA coverage upon execution of this proposal:

Market Current Borrows (MM) (as of Jan 25th)
sUSDe-DOLA 71.79
wstUSR-DOLA 32.21
yv-sUSDe-DOLA 11.14
sUSDS-DOLA 5.65
sUSDe 2.39
yv-wstUSR-DOLA 1.95
scrvUSD-sDOLA 1.39
cvxCRV 1.22
wstETH 0.58
INV 0.49
yv-sUSDS-DOLA 0.39
wBTC 0.28
st-yCRV 0.16
CVX 0.13
cbBTC 0.07
yv-scrvUSD-sDOLA 0.03
wETH 0.01
yv-USR-DOLA 0
CRV 0
USR-DOLA 0

On-Chain Actions

  • Call allowedMarkets for all 20 markets in the FiRM Slashing Module contract