@Sirokko makes a strong argument against Proposal 109. Currently, most markets are over-supplied, and decreasing reserve factors (to raise supply rates, and slow the growth of reserves) does not seem like the correct direction (at this moment). I plan to vote against Proposal 109, but I’m very excited and grateful that Gauntlet’s proposal is kicking off an important discussion, and the work @klinsuain is proposing is a needed improvement.
If there are more reserves than value at risk, it might benefit the safety of users to look at alternate approaches to manage excess reserves, e.g. reallocating from individual markets. A great example are the following markets:
- BAT: $1.48m borrowed, $1.13m reserves
- ZRX: $1.08m borrowed, $0.43m reserves
- USDT: $487m borrowed, $3.07m reserves
- USDC: $304m borrowed, $13.26m reserves
- ETH: $11.73m borrowed, $0.79m reserves
Given the markets above, should the protocol consider converting/migrating reserves from BAT/ZRX into USDT, etc, which has the worst ratio of borrowing/reserves? Or to convert excess reserves from BAT/ZRX to be able to cover bad debt from decreasing price scenarios (USDC) and rising price scenarios (ETH)? Generally, the super-majority of borrowing demand (and risk) comes from borrowing stablecoins, which are the asset most likely to not be returned via bad debt.
In addition, I’m looking forward to the near-term release of Compound III which could have its own reserve needs that could be bootstrapped from the excess reserves in the current protocol.