This proposal seeks to set the reserve ratio of the DOLA market on Frontier to 100% to prevent bad debt from artificially inflating on-chain revenue and to ensure that profits from Frontier DOLA go to our reserves rather than to other lenders.
Currently, the reserve ratio for Frontier markets is set at 20%, which has led to the accumulation of extra bad debt, especially on the DOLA market. While the Frontier Fed captures that vast majority of this extra bad debt, which is then recycled round to pay it down again, it is currently possible for other DOLA lenders to come in meaning the bad debt permanently accrues.
The motivation behind this proposal is to address the issue of bad debt accumulation and protect our users from its negative effects. By setting the reserve ratio to 100%, we can prevent bad debt from artificially inflating on-chain revenue and ensure that profits from Frontier DOLA go to our reserves rather than to other lenders.
With this proposal, 100% of Frontier DOLA profits will go through reserves rather than the Frontier Fed. This change will ensure that the profits from Frontier DOLA go to our reserves rather than to other lenders. The reserves can then be periodically used to pay down DOLA bad debt, as demonstrated by Proposal 99 which used 105,000 DOLA reserves to pay down bad debt. Setting the reserves to 100% guarantees that all the additional bad debt accrued in the Frontier DOLA market are possible to be recycled round to further bad debt repayment, netting the impact to 0.
- Set the reserve ratio of DOLA market on Frontier to 100%