PROPOSAL: Distribute DAI to Users Affected by DAI Liquidations

[inkymaze]

Gauntlet is in agreement that using DAI over COMP sets a good precedent and acts as a strong signal to the broader community. We also intend to model reserve growth to help the community reason better about scenarios such as this.

@inkymaze

Proposal 49 routes a fraction of liquidation incentive from liquidators to the reserves. This change effectively allocates 5.2% of liquidation to liquidators and 2.8% to the reserves, which increases the protocol’s ability to recover from insolvency by growing the backstop liquidity, but reduces the incentive for liquidators. We will update the effective liquidator incentive to 5.2% in the simulation to accommodate the change.

Our current simulation is mainly focused on modeling insolvency risk in one day. Considering the average liquidation size relative to the sizes of reserves, the 2.8% of liquidations added to the reserves in a day will likely not have an immediate impact in such a short time frame. However, tracking the amount of reserves over time and forecasting the growth rate of the reserves due to parameter changes can definitely help community members to better understand the protocol’s liquidity backstop. Forecasting the reserve growth rate is not in our initial scope, but we will evaluate how to support this in Q1 2022.

While a threshold or reduction ratio intuitively make sense the risk of subjectivity is too high.

For those reasons, Gauntlet will be voting FOR CP059.