| SIP | Title | Author | Status | Track | Created |
|---|---|---|---|---|---|
0055 |
Zero Fee Floor Update |
John Light (@john-light), Ororo Monroe (@ororopickpocket), Tyrone Johnson (@tjcloa) |
Ready for vote |
Contract |
2023-03-01 |
We have been running the Zero protocol with limited access since June 2022. During this time we could observe the behavior of the protocol and the market in different circumstances. In times of low liquidity of bridged stablecoins in Babelfish and deviation from the global BTC market price on the AMM we experienced an unreasonably high amount of redemptions.
Before we open the Zero web app to the general public, we should take measures to protect borrowers from excessive redemptions. We therefore propose to increase the minimum redemption and origination fees from 0.5% to 2.5%.
The increased redemption fee allows for a higher price deviation on the AMM before redemptions become profitable. This should not just reduce the number of redemptions, but also increase the trading volume on the AMM, which ultimately benefits the LPs and the SOV stakers.
The increased borrowing fee should help with tempering the opening of new lines of credit, which leads to fewer DLLR created and therefore lower sell pressure. In the future, short term borrowers might decide to borrow from the DLLR lending pool instead, which provides an additional avenue of earning yield on DLLR and therefore BTC.
The Sovryn community may consider organizing a working group to review these parameter values to assess the effectiveness of any changes and develop a repeatable process for updating them over time.
Updating BORROWING_FEE_FLOOR from 0.5% to 2.5%
Updating REDEMPTION_FEE_FLOOR from 0.5% to 2.5%
Copyright and related rights waived via CC0.