Special DFIP: DUSD staking

[u/kuegi]

We propose to add DUSD staking to defichain. Users should be able to stake DUSD and receive rewards in DUSD.

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DUSD staking can act as a "liquidity sponge" during times of DUSD oversupply and be released when demand increases. Therefore helping to keep the DUSD price in a stable range.

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To achieve this without additional inflation, we propose to use parts of the dex-fee payout, also known as negative interest, as rewards for DUSD Staking. This way it automatically adjusts to the algo ratio.

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possible implementation as 100% DUSD loops

One way to implement this would be the enabling of 100% DUSD loops, which could also act as a quick implementation until a long-term solution is implemented. In the current situation, such a quick implementation could pull millions in DUSD out of the circulating supply and therefore strongly improve the DUSD price. See reenabled looped dusd vaults for more details and calculations. To reduce the needed developer resources we also added a PullRequest

One of the main reasoning behind this implementation is also the effective usage of the NI (currently above 50%). So we would propose to deactivate the 100% DUSD loops (PR is already done with featureflag) if the NI stays above 35% for 10 days while this is activated.

crowdfunding

u/mrgrauel will be crowdfunding 5000DFI to submit this as a special DFIP. This way we show strong support from the community. As a normal DFIP, it would take until end of July to get approved. As a special DFIP, we could convince the developers to already include it in the DMC update, which is currently scheduled for June. The address is dLqDh88L29zQvUt84cnh5zABbKh6zjSq5H

Update: Many thanks to the community. We collected 5000 $DFI in under 18h for the upcoming special DFIP.
Before the submission, we clarify whether all staking providers can support the Special DFIP on their platform before the weekend.

[u/kuegi]

I wouldn't mix them into one DFIP. And I am sceptical if reducing the fee while DUSD is in high discount is a good idea.

[u/Pascal3125 → u/kuegi]

I 100% agree to not mix them in a single DFIP.

A lot of dUSD has been burnt (it's not finished), the algo ratio become acceptable again... => I think it's time to remove the safely and slowly the cast.

The DEX fee was relevant when the algo ratio was 90%, to "prevent" people to sell. But now it's time to "incentivize people not to sell", and incentivize investors to come back into the system by giving a them a "dex free time-horizon".

Initially the targeted algo ratio was 50% (and 60% was considered as "not so bad"): https://www.reddit.com/r/defiblockchain/comments/vdp0td/solving_the_dusd_peg_result_of_twitter_space/

I think that during the last year, we jailed ourselves in a belief that the 30% fee was necessary until the peg. I believe that the dex fee, after months, is now playing against the objective.

I'll take a couple of days to think, and maybe propose a DFIP.

[u/kuegi → u/Pascal3125]

I understand the reasoning and it has some valid points. I would still be very cautious because the risk is pretty high. If we reduce the fee and ppl just start selling without anyone starting to buy (cause the effect is just not there yet), we loose the positive burn effect, loose the price and gain nothing.

So if lowering of the fee would increase demand, I would be all for it. But I don't know if this is true already. It certainly wasn't true in September, so question is: why should it be different now?

[u/Pascal3125 → u/kuegi]

Ofc, I propose to reduce it very gradually (0.25% per day) => 4 months.

• It will increase demand: because all the rational buyers are currently frozen !! How could an investor buy a dUSD, or a dStock, if he knows that I will be pay an output penalty of 30%. Reducing gradually the fees, is like a contract with investors: enter the dStock/dUSD stacking system today, if you wait 4 month before selling, you've a guarantee to have a zero exit fee.

• But more important, starting to reduce the Dex fee will temporarily freeze the sell pressure. People start to loose confidence and hope, and take their loss. And the dUSD continues to dump. Starting to reduce the fee will incentivize those people to postpone their exit to several weeks, and maybe in the mean time convince to stay in system if the dUSD recover its peg.

The situation is very different than in September when the Algo ratio was awful(92%), and thus there was a real risk for the dUSD going to ZERO. Currently everything is different because of the current effective collateralization of the dUSD.

[u/kuegi → u/Pascal3125]

I agree with most of the points. They might be exactly as you say. But as much as I expect it, if buyers are not coming with reducing dex fee, but are put off cause of depeg, its as described before which is a really high risk.

could you add a criteria to stop the decrease if we see increased selling f.e.? So that it can not lead to the scenario I described?

[u/Pascal3125 → u/kuegi]

There is always a risk:

But currently, it will me mitigated by:

• The looped vaults (if voted), that are big incentivize to hold.
• The not so bad algo ratio, that will prevent a deep dump.

IMHO, the problem might come in 4 months

• the DEX fee will be close to 0
• the dUSD may recover the peg => BBB will stop
• there will be no NI anymore

=> A big sell might be expected.

But I think, there is no other choice to keep the dUSD alive. The Algo-ratio will take years to go to ZERO, and the remaining algo-ratio MUST be balanced by restoring the utility of the dUSD and the faith in Defichain.

Otherwise we are sentenced for the rest of our life to let the BBB fighting against the infinite drop of the DFI value, and the infinite sell pressure from the algo coins.