Possibility of negative token interest rate for loan tokens

[uzyn]

What would you like to be added:

Loan tokens should be allowed to have a negative interest rate.

Effective token interest rate (unchanged) = vault interest rate - token interest rate.

When effective token interest rate is negative, interest owed is reduced, even to the point of it being negative. There could be case when amount owed is less than principal.

Destruction and burn behavior

Currently at Fort Canning

Loan token's principal is destroyed upon payback, excess, i.e. interest, are swapped into DFI and burned.

Proposal to be added by the next upgrade

To prevent the baseline of having all loan tokens be backed by cryptocurrencies from continuing to shift forward without correcting itself, Untethered Loan Token counter is to be introduced.

When entire payback happened and it is less than principal (due to negative interest rate), insufficient loan tokens are destroyed, The excess loan tokens are therefore being added to a global Untethered Loan Token counter.

When there are excess, total loan token to be destroyed should be principal (of vault) + minumum of (global untethered loan token counter, excess amount). This should therefore reduce unthetered loan token counter, with the aim of getting it back to 0 when interest rate is positive.

Only if there are any excess loan tokens from the above will it be further swapped into DFI and burned.

Why is this needed:

AMM DEX is lacking of order book. This limits arbitrage possibilities of dToken.

When dToken interest rate is negative, it allows DEX of dToken to be arbitraged without being dependent on AMM DEX correcting itself.

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[Buschfunker]

Has any well experienced finance or economist looked over this to doublecheck?

[dingodon]

What is preventing dusd to spike and liquidate most dusd vaults? Is it not necessary to have the option to payback dusd loan in dusdc or dusdt? With all the demand in comming days, very deflationary for a stablecoin

[LugoCairns]

@uzyn thanks for letting this happen so quick ! great work ! how long will this aprox take to be implemented?

[Gainto]

Sounds good! The dUSD price really prevents me of getting into stock-LM and "pushes" me into minting dUSD by myself. Even though I said "i'll not take a loan, i'll simply buy dUSD/dTOKEN on the DEX and do LM". Good idea! When can this be implemented?

[rmcookie]

Sounds good! The dUSD price really prevents me of getting into stock-LM and "pushes" me into minting dUSD by myself. Even though I said "i'll not take a loan, i'll simply buy dUSD/dTOKEN on the DEX and do LM". Good idea! When can this be implemented?

I would say we would need to wait for the next voting round

[JayMadR]

EDIT: misunderstood something - this comment is irrelevant!

as I understand this, its only planned for DUSD, right? in my opinion, this doesn't solve the endless loan loop of the other stock tokens I just described on reddit

to be honest, I don't know exactly if I understand the whole thing - but this looks a little odd to me right now

https://www.reddit.com/r/defiblockchain/comments/ra55ri/is_this_the_same_unpossible_st_as_fiat_money/?utm_source=share&utm_medium=web2x&context=3

[daffilein]

Having the dUSD at such a high premium makes it impossible for me to buy dUSD to pay back my loan without a huge loss, which poses a great risk for me, and at the same time having my funds blocked prevents me from participating in the Stock Liquidity Mining. So yes, we need this, and I hope we can have an extraordinary voting round asap and DON'T need to wait until the end of the month!

[JayMadR]

sorry if I offended someone - didn't want this! I just want to discuss this topic objectively and learn that way - If I'm wrong I would like to understand why. Thanks!

https://www.reddit.com/r/defiblockchain/comments/ra55ri/is_this_the_same_unpossible_st_as_fiat_money/?utm_source=share&utm_medium=web2x&context=3

[defiprop]

This proposal should be prevented BY ANY MEANS. The price of DUSD reflects its value, which is significantly higher then the value of a dollar, as you can get extremely high interests. The price of DUSD will drop automatically if the interest rates drop over time. By printing unbacked DUSD you try to regulate a self-regulating free market. If this proposal is applied I hope there will be a chainsplit into DeFiChain and "FEDChain". Why do you want to manipulate the price of a token that has a significant higher value than its nominal value to its nominal value? DUSD is not a classical stablecoin. People who do not understand the difference between price and value simply should not go into DUSD. This proposal is VERY DANGEROUS!!! and destroys the otherwise free market. What will come next? Giving Stock holders free (unbacked) stocks when their price is higher than their nominal value? THIS MIGHT DESTROY THE WHOLE DEFICHAIN PROJECT!!!

[Gainto]

This proposal should be prevented BY ANY MEANS. The price of DUSD reflects its value, which is significantly higher then the value of a dollar, as you can get extremely high interests. The price of DUSD will drop automatically if the interest rates drop over time. By printing unbacked DUSD you try to regulate a self-regulating free market. If this proposal is applied I hope there will be a chainsplit into DeFiChain and "FEDChain". Why do you want to manipulate the price of a token that has a significant higher value than its nominal value to its nominal value? DUSD is not a classical stablecoin. People who do not understand the difference between price and value simply should not go into DUSD. This proposal is VERY DANGEROUS!!! and destroys the otherwise free market. What will come next? Giving Stock holders free (unbacked) stocks when their price is higher than their nominal value? THIS MIGHT DESTROY THE WHOLE DEFICHAIN PROJECT!!!

dUSD should reflect 1 USD

[derstrecker]

Why not just add a dUsd/dUsdt and dUsd/dUsdc Pool Pairs? Should be enough to handle the stability of dUsd - without a fork.

[defiprop]

Why not just add a dUsd/dUsdt and dUsd/dUsdc Pool Pairs? Should be enough to handle the stability of dUsd - without a fork.

Great Idea! This would in fact help to accelerate the devaluation of DUSD without manipulating the free market. And it will help people to understand that DUSD is not a classical stablecoin (which most people obviously do not understand).

[defiprop]

This proposal should be prevented BY ANY MEANS. The price of DUSD reflects its value, which is significantly higher then the value of a dollar, as you can get extremely high interests. The price of DUSD will drop automatically if the interest rates drop over time. By printing unbacked DUSD you try to regulate a self-regulating free market. If this proposal is applied I hope there will be a chainsplit into DeFiChain and "FEDChain". Why do you want to manipulate the price of a token that has a significant higher value than its nominal value to its nominal value? DUSD is not a classical stablecoin. People who do not understand the difference between price and value simply should not go into DUSD. This proposal is VERY DANGEROUS!!! and destroys the otherwise free market. What will come next? Giving Stock holders free (unbacked) stocks when their price is higher than their nominal value? THIS MIGHT DESTROY THE WHOLE DEFICHAIN PROJECT!!!

dUSD should reflect 1 USD

Why? The price should reflect the value, which is obviously higher than 1 USD. The manipulation of the price will lead to an inflation (and thereby indirectly reducing the interest rate). Have a look at the GBTC discount. You can get "BTC" for 15% less of its USD-price. However, people do not buy it. Why? Because the market offers better fully backed BTC products. Let the market decide, don't copy the FED.

[Shenzen1982]

The problem is that there is no free market. Because there is no secondary market for DUSD, it cannot balance itself out. The only way the rebalancing can take place is if everyone goes back through the same DUSD gate and corrects the price (but this can only be done by losing money). But since DUSD is higher, there is no incentive to do this and you will never really be able to lower the price.

But if this is really the case, there must be a mistake in my thinking somewhere, because I cannot imagine that this was not foreseen by the people at DEFIChain.

[Rno123]

I think the negative funding rate is a great idea. It will allow price of DUSD to be slowly returned to $1. If USDT-DUSD liquidity is provided at this current state, there is a chance that DUSD still trades at a premium to USDT because the liquidity pool is isolated within the DeFiChain ecosystem. This means that unless a pool with sufficiently deep liquidity of USDT-DUSD is provided, the idea of a pool is unlikely to work as of the current status.

A negative funding rate is ideal because it minimizes risk. By charging interest to borrow DUSD when borrowing is high and refunding negative interest when borrowing is too low, the system is less likely to experience price shocks, because there is still a lack of active arbitrating mechanism. Instead, arbitragers are now forced to play a longer term game in order to profit reliably from their positions.

That said, the exact mathematical parameters are beyond my abilities, but what I can foresee happening is that if the magnitude of interest rate is too small, you might not have any visible impact in the short run, which could disincentivize the arbitrating mechanism. Too high and you risk over-correction, resulting in a stablecoin that keeps fluctuating back and forth the dollar peg.

As for the other dTokens, I believe once DUSD is fixed, they should be able to be arbitraged effectively to oracle prices over time since the premium paid for these stocks currently are the indirect consequence of a demand issue for the stocks, which is also the supply side issue of the DUSD. Once the supply of DUSD is restored via incentives for people to mint DUSD, the premium for these stocks should go down as well. However, this argument assumes that all dTokens are currently traded at similar levels of premium which will wane equally when DUSD price peg is fixed. That assumption may not hold, which is why additional measures can be considered again once DUSD peg has been fixed.

TLDR, imho, it would be optimal to introduce the funding rate mechanism, then add USDT-DUSD liquidity pools, then address dToken prices, if they remain far from the peg.

[prasannavl]

Great to see some healthy discussions on going! Prioritising the design on this slightly higher - please keep the feedback coming :)

[otto1593]

This proposal should be prevented BY ANY MEANS. The price of DUSD reflects its value, which is significantly higher then the value of a dollar, as you can get extremely high interests. The price of DUSD will drop automatically if the interest rates drop over time. By printing unbacked DUSD you try to regulate a self-regulating free market. If this proposal is applied I hope there will be a chainsplit into DeFiChain and "FEDChain". Why do you want to manipulate the price of a token that has a significant higher value than its nominal value to its nominal value? DUSD is not a classical stablecoin. People who do not understand the difference between price and value simply should not go into DUSD. This proposal is VERY DANGEROUS!!! and destroys the otherwise free market. What will come next? Giving Stock holders free (unbacked) stocks when their price is higher than their nominal value? THIS MIGHT DESTROY THE WHOLE DEFICHAIN PROJECT!!!

dUSD should reflect 1 USD

dUSD should reflect 1 USD!

100% Agree! dUSD should refelct 1 USD. If that's not the case there will be a problem of onbording new users to the eco system. If 1 dUSD is more than 0.05% off to the USD we can kiss the idea of a decentralised stock exchange good bye. At the end of the day thats the utility of DefiChain ... not Staking Rewards

(Negativ) interest rates are a super efficent way to do this - given that not a human actor is setting them but an algorithm.

[chriger]

I think variable interest rates for minting DUSD resolves the actual issue. Additional trading pairs e.g. dUSDC - dUSD or dUSDT - dUSD would not resolve the high arbitrage issue. I do not see how additional pool-pairs for USDT and USDC increase the incentive to mint DUSD. There are a lot of people minting DUSD swap it to DFI and then swap it to USDC or USDT. Additional pool pairs would only shorten this way and may remove DFI from the "trading" chain.

When there is not enough DUSD in the market (DUSD > 1 USD) additional DUSD is "created" by reducing the loan of a "DUSD"-Vault and therefore you have to payback less loan. When DUSD hits < 1 USD or near to 1 USD you have to pay interest on your DUSD-Loan and reducing the amount of DUSD in the market.

I agree with @otto1593, at least no one would buy dTokens with a premium of 15 to 20 percentage only to hold a dToken like dTSLA - and why should another exchange list your dToken with such a high premium?

EDIT: By now if i mint DUSD i have to pay the LOAN + interest rate. I only can pay the additional interest rate if anyone else mints more DUSD and sell it to me so i can pay the interest. On the long run i would say DUSD would get more expensive.

By now 56,377,451.62634288 (creation height: 1,367,556) are mintet (https://defiscan.live/tokens/15). Actually you have to pay 1 to 2 percent interest on 56 mio DUSD 560 k - 1,120 k interest per year. If the DUSD minters have to pay interest by themselves you would penalize minting DUSD and therefore no one would mint DUSD anymore and the price of DUSD would sky rocket.

[otto1593]

We also should talk about the deviation of the Stock DEX price vs. the Oracle Price.

For me it's a feature that deviation is possible. Especially during times where there is no price feed available. But if the DEX separates too much from the oracle price, I also would support negative interest rates to get them back to the oracle price.

At the moment we only have one side of the medal positiv interest rates ...

[chriger]

@uzyn how you are going to calculate the token interest rate? The pink paper or your description does not specify that, does it?

Maybe: Oracle's USD/DFI / DUSD/DFI on DEX - 1 For example: 4.92 USD / 3.791 DUSD - 1 = 0.2978106041

Or even better use a new Oracle for DUSD/USD which contains multiple DUSD/USD calculations?

[defiprop]

@uzyn @chriger @otto1593 @Rno123 @Gainto :

I assume there is some reason why people buy dStocks at a premium of around 50% (33% (USD=>DUSD) x 12.8% (DUSD=>dStock) = 50%) over the real world price, namely: they expect an APR that is higher than the "loss" (it's unlikely but it might be that they can sell back their dStocks with that 50% premium again, probably slightly less due to the decrease in LM rewards over time) they make. They know that this dStock has a higher value than its real world counterpart due to the fact that they can make profits by liquidity mining. Now, when you devaluate DUSD by 33% (to 1 USD), what do you assume will happen to the price and premium of that dStock w.r.t. DUSD? Will it go down? Or stay the same? Or go up? Why?

I personally assume that the price w.r.t. DUSD will go up, as the value of that dStock stays the same (you still can get your LM rewards). So every (artificial) decrease in value of DUSD will cause an (nominal) increase in dStock prices. Now you will have to explain investors why they have to pay a 50% premium over the real world stock price. Until some smart guy comes up with the idea #1324 of also manipulating the dStock price by printing more (unbacked) dStocks. What are your thoughts on that?

In my opinion, the idea technically is fascinating as I love these mechanics of decentralization technology. But it won't solve the problem that an asset that has a special quality (making profits by putting it into a liquidity pool) is not traded for its "nominal value" as it is a combination of the representation of the underlying asset PLUS its ability to create profit.

I think it would be better to communicate transparently that the value of DUSD is higher because of it's special quality. Isn't it much cooler to have that special asset with a special price? Not trying to imitate the boring real world dollar? Just to explain investors then why they have to pay a 50% premium for dStocks?

The premium of DUSD over USD is not a bug, it's a feature. Just sell it as such to new investors. If you adjust the DUSD premium you will just shift the problem to dStocks.

[chriger]

Yes but the LM-Pools should provide liquidity to those who want to buy a dToken.

Liquidity mining is not the main feature for the dTokens. The main goal is to give people access to tokens whose price reflects to the real world asset.

By now you have high rewards in the dToken LM pools whose are decreasing over time until there is a point you will get commission for providing liquidity to a pool and no more rewards or a little fraction of the rewards today.

When you only want to buy a dToken and only want to hold it, you wont buy it with a premium. No one who wants to buy and hold only dStocks (without LM) cares about the system and logic behind it, they only see: "TSLA is 20 percent more expensive, i wont buy it".

[defiprop]

@chriger so you do not think that the dStocks prices w.r.t. DUSD will go up if you inflate DUSD? Or that investors will think: "Ah, finally the DUSD price is at 1 USD. NOW I am willing to pay 50% premium on the dStocks."

[otto1593]

@chriger so you do not think that the dStocks prices w.r.t. DUSD will go up if you inflate DUSD? Or that investors will think: "Ah, finally the DUSD price is at 1 USD. NOW I am willing to pay 50% premium on the dStocks."

I understand you payed a premium and didn't mint your tokens to do LM. I hope for you the LM will compensate you for any loss you might have, if the overpriced asset you bought goes back to its fair value. LM is a mechanism, it's not the value DeFichain wants to provide. We want to open the investment opportunity of the stock and commodity market to people who are unbanked.

Part of that is that, you also have to be able to exit your trade and store in a "stable" currency. There is no point in having DUSD if the price jumps around like crazy. That's a bug not a feature and it needs to be corrected to fulfill the value preposition of defichain.

The reale thing we should talk about is, if NEGATIVE interest rates on DUSD are enough, or if we need them also for the commodity and stock tokens!

[defiprop]

@otto1593 Yes, I agree, if the DUSD price is manipulated then the dStock prices need to be manipulated as well. However, if only DUSD is devaluated, the dStock prices will go up w.r.t. DUSD (due to supply and demand, as the supply of DUSD will increase whereas the dStock quantity stays constant). I think the proposal is a great solution from the technical point of view, however, it will not solve the problem that supposedly should be addressed (namely giving investors the possibility to trade DUSD AND dStocks at prices close to the real world prices). Anyway, I see more interesting possibilities to incentivize people to mint more DUSD (like for example allow liquidity mining on the DFI-DUSD poolpair in vaults). With only printing DUSD the dStock prices will go up and the problem is not solved but shifted (to a premium in dStock prices).

[goscha80]

My english is not good enough to make this text reasonable in english. Maybe someone would translate this accordingly.

Ich schließe mich den meisten Vorrednern an. Die vorgeschlagenen Lösungen würden die folgen jedoch nicht das Problem und selbst das nur kurzfristig beheben. Um die Kernproblematik zu verstehen muss man erstmal folgendes vor Augen führen. Was sind die Momentanen Stocks auf der Defichain und was haben diese mit den realen Stocks gemeinsam? Die Antwort ist: der Name und ein preislicher Bezug während der Erstellung mehr jedoch nicht. Ein Wert für die Stocks innerhalb der Defichain ist jedoch ein anderer. Denn mit den Stocks kann im Gegensatz zur realen Welt zusätzlicher Wert generiert werden. So kommen wir auf die drei wesentlichen Akteure innerhalb der Defichain: Liquidity-Miner Arbitrage-Trader und Trader(long/short Term auch Hodler). Diese verfolgen unterschiedliche Strategien jedoch haben ein Ziel gemeinsam, dass ist der Profit. Jedoch kann keine DEX und auch keine CEX ohne auch nur einer dieser Akteure funktionieren. Diese Tatsache wird in der weiteren Diskussion von Bedeutung sein. Im Grunde ist die Architektur für die Stocks auf der Defichain gut gemacht. LMer kommen auf deren kosten für die ist der Preis bzw. die Preisdifferenz zu der realen Welt nicht von Bedeutung. Die Arbitrage-Trader können zwar Profite generieren, aber diese können den Preis nicht ausarbitragieren (Das ist die Kernproblematik). Die Trader sind durch die verzerrten Preise verunsichert. Also muss ein Weg gefunden werden um die Preise (nicht die Werte) der Stocks und des dUSD an die reale Welt anzupassen. dUSD nimmt in dieser Diskussion einen besonderen Stellenplatz ein. Dieser wurde zwar nach dem USD benannt hat aber mit diesem in der momentanen Konstellation nicht viel gemein. Es ist eher ein DFI2-Token. Der dUSD wurde zu einem Utility Token. Da dieser aber zu einem vergünstigtem Kurs (DFI) erzeugt werden kann hält sich sein Preis in Grenzen. Dazu später mehr. So bewirkt der dUSD Token den Preisverfall von DFI in dem dUSD-DFI Pool. Da dieser momentan gefragter ist.

Wie einer meiner Vorredner bereits bemerkt hatte ist das System in sich nicht Konsistent. Es können nicht genug Stocks erzeugt werden um alle Darlehen inklusive Zinsen zu decken. Geschweige denn der Situation, dass nicht alle dToken zu LM hinzugefügt werden. Manche kaufen tatsächlich diese Token um diese zu Hodlen. So habe ich zumindest die Ziele der Defichain verstanden. Aktien bzw. teile von Aktien traden zu können. Manche werden die Wallet samt des Inhaltes verlieren weil die deren Schlüssel verlegen oder löschen. So werden die dToken für immer unzugänglich. Ein dUSD-dUSDT pool würde keine Abhilfe schaffen. Da DFI dabei überflüssig wäre. Es würde zwar auf der Defichain sich abspielen. Aber den Preis langfristig dumpen. Negative Verzinsung des dUSD halte ich auch nicht für den optimalen Ansatz. Es könnte dazu führen, dass einfach Kredite von dUSD aufgenommen werden würden, um diese zu Halten, oder um Stocks zu kaufen was weiteren Preisanstieg auf den Stocks bedeuten würde. Man müsste immer wieder nachkorrigieren. Der Markt würde sich eben nicht selber ausgleichen. Sondern eher träge über künstliche Eingriffe. Mein Lösungsvorschlag ist ein Darlehensmodell mit ca. 105%-110% (evtl. weniger) Besicherung und sehr hoher Verzinsung (50%-100% APY evtl. mehr) einzuführen. Das würde die Grundarchitektur der Defichain nicht ändern. Aber folgendes bewirken:

1. Arbitrage-Trader hätten dann die Möglichkeit kurzfristig ein Darlehen nahezu 1:1 zu den Preisen aus der realen Welt aufzunehmen. Dieses würden die dazu nutzen um schnellstmöglich den Profit zu generieren und dabei den Preis auf der DEX zu nivellieren.
2. Sollte durch den Preisdruck von oben der Preis zu tief absinken, wären dann entweder wieder die Arbitrage-Trader dran oder auch die LMer die deren Schulden wieder günstiger begleichen wollen würden. Auch die Trader könnten sich einmischen um günstiger Nachzukaufen. Somit entstünde wieder Presidruck von unten.
3. Die Kurzfristigen Darlehen würden mit hoher Wahrscheinlichkeit liquidiert werden. Dieses würde für mehr Bewegung auf den Auktionen sorgen. In vielen Fällen wären aber die Auktionen zu teuer. Also müssten die Collaterals zu DFI umgewandelt werden und diese Anschließend verbrannt. Dieses sorgt evtl. für Wertanstieg des DFI-Coins.
4. Alle Stock-Pools könnten unabhängig aber auch übergreifend nivelliert werden können.
5. Wahrscheinlichkeit der Nutzung des Darlehnsmodells für andere außer Arbitrage-Zwecken ist sehr gering.

Dass dieses funktionieren könnte sehen wir an der momentanen Situation in der DEX. Die Arbitrage-Trader holen sich vergünstigte Stocks über das 150% Darlehensmodel. Verkaufen diese gegen dUSD mit im Schnitt 10-12% Vorteil. Daraus resultiert ein 132% Darlehensmodel für dUSD. Darüber werden die günstigen DFI geholt. Das Darlehen wird liquidiert. Hier kann auch die mathematische Erklärung gefunden werden warum der dUSD-DFI um ca. 30% dem dUSDT-DFI hinterher hinkt.

[lescha1983]

translate to english

I agree with most of the previous speakers. The proposed solutions would follow but not solve the problem and even that only in the short term. In order to understand the core problem, one must first consider the following. What are the current stocks on Defichain and what do they have in common with the real stocks? The answer is: the name and a price reference during creation, but nothing more. However, a value for the Stocks within the Defichain is different. This is because Stocks can be used to generate additional value, unlike the real world. So we come to the three main players within the Defichain: Liquidity-Miner Arbitrage-Trader and Trader(long/short term also Hodler). These follow different strategies but have one goal in common, that is profit. However, no DEX or CEX can function without even one of these players. This fact will be important in the further discussion. Basically, the architecture for the stocks on the Defichain is well done. LMers come at their cost for which the price or price difference from the real world is not important. The arbitrage traders can generate profits, but they cannot arbitrage the price (This is the core issue). The traders are confused by the distorted prices. So a way must be found to adjust the prices (not the values) of the stocks and dUSD to the real world. dUSD occupies a special place in this discussion. It was named after the USD but has not much in common with it in the current constellation. It is rather a DFI2 token. The dUSD became a utility token. However, since it can be generated at a discounted rate (DFI), its price is limited. More about this later. Thus, the dUSD token causes the price of DFI in the dUSD-DFI pool to fall. As this is more in demand at the moment.

As one of the previous speakers noted, the system is not consistent in itself. Not enough stocks can be generated to cover all loans including interest. Let alone the situation where not all dTokens are added to LM. Some actually buy these tokens to hodle them. At least that is how I understood the defichain goals. To be able to trade shares or parts of shares. Some will lose the wallet along with the contents because they misplace or delete their keys. So the dTokens will be inaccessible forever. A dUSD-dUSDT pool would not help. Since DFI would be superfluous. True, it would play out on the defichain. But dump the price in the long run. Negative interest on dUSD I don't think is the optimal approach either. It could lead to simply borrowing from dUSD to hold it, or to buy stocks which would mean further price rise on the stocks. One would have to correct again and again. The market would not balance itself. But rather sluggish about artificial interventions. My proposed solution is to introduce a loan model with approx. 105%-110% (possibly less) collateralization and very high interest rates (50%-100% APY possibly more). This would not change the basic architecture of the defichain. But do the following:

Arbitrage traders would then have the opportunity to take out a short-term loan at almost 1:1 at real world prices. They would use this to generate profit as fast as possible and to level the price on the DEX. If the price should sink too deeply by the price pressure from above, then either the arbitrage traders would be again turn or also the LMer which would want to settle their debts again more favorably. Also the traders could interfere around more favorable Nachzukaufen. Thus again Presidruck from below would develop. The short-term loans would be liquidated with high probability. This would provide for more movement on the auctions. In many cases, however, the auctions would be too expensive. So the collaterals would have to be converted to DFI and then burned. This possibly provides for increase in value of the DFI coin. All stock pools could be leveled independently but also across them. Probability of using the loan model for other than arbitrage purposes is very low. That this could work we see in the current situation in the DEX. The arbitrage traders get discounted stocks via the 150% loan model. Sell these against dUSD with an average 10-12% advantage. This results in a 132% loan model for dUSD. The favorable DFIs are fetched over this. The loan is liquidated. Here also the mathematical explanation can be found why the dUSD-DFI lags behind the dUSDT-DFI by approx. 30%.

[otto1593]

To pick up the main arguments:

-) not enough stocks/dusd are available to cover all the loans

At the moment we only have 50% of the mechanics. Positive interest rates are good if the price is higher on the dex than on the oracle. Negative interest rates would solve the opposite case. At negative interest rates we would have an increase in supply, with postive interest rates we have an increase in demand. Positive interest rates are the reason not everyone could fill there loan at the same time, negative interest rates would offset that.

-) negative interest rates lead only to hodling

-----> Thats like saying postive interest rates at the bank only lead to people not with drawing there money. Empirical I would argue that the increase will be spend eventually.

About the arbitrage suggestion. I'm all for arbitrage - but arbitrage is a zero sum game. If you mint dusd and sell it, you have to go the same way back to settle your loan. Liquidation of pools is not an exit we should be aiming for.

PS: Die Übersetzung war gut. Hast Du google translate verwendet?

[goscha80]

To pick up the main arguments:

-) not enough stocks/dusd are available to cover all the loans

At the moment we only have 50% of the mechanics. Positive interest rates are good if the price is higher on the dex than on the oracle. Negative interest rates would solve the opposite case. At negative interest rates we would have an increase in supply, with postive interest rates we have an increase in demand. Positive interest rates are the reason not everyone could fill there loan at the same time, negative interest rates would offset that.

-) negative interest rates lead only to hodling

-----> Thats like saying postive interest rates at the bank only lead to people not with drawing there money. Empirical I would argue that the increase will be spend eventually.

About the arbitrage suggestion. I'm all for arbitrage - but arbitrage is a zero sum game. If you mint dusd and sell it, you have to go the same way back to settle your loan. Liquidation of pools is not an exit we should be aiming for.

PS: Die Übersetzung war gut. Hast Du google translate verwendet?

But this is what happens now. Look on the auctions. Vaults with collateral of 70.000$ or more get liquidated. And the owner has enough money on his Wallet to prevent the liquidation. This is the only way to arbitrage the Pools now. Arbitrage-Trader takes all what he can get. From 0.01% till endless. It doesnt matter. Instant Profit.

[Shentist]

Create a Dusd Vault only. If yes, the collateral could be only USDT and USDC with a collateral ratio with 100%.

Dusd needs a way to arbitrage itself out, but inside DFI it will not be possible. There are big money pools already doing this with USDC and USDT so we should focus just to make it possible to do arbitrage with DUSD.

The idea with negative interest is nice, but it is just a new toy we didn't know how it will work in reality. We should focus on ways how the outside money can flow more easily into Defichain. We need a way without Cake to send USDT inside Defichain.

[goscha80]

Create a Dusd Vault only. If yes, the collateral could be only USDT and USDC with a collateral ratio with 100%.

Dusd needs a way to arbitrage itself out, but inside DFI it will not be possible. There are big money pools already doing this with USDC and USDT so we should focus just to make it possible to do arbitrage with DUSD.

The idea with negative interest is nice, but it is just a new toy we didn't know how it will work in reality. We should focus on ways how the outside money can flow more easily into Defichain. We need a way without Cake to send USDT inside Defichain.

The idea Dusd Vault only is nice. But how would this affect the price and the demand of DFI? There is then no need for the DFI to get in the Stock market and the LM. Most of the rewards would be exchanged to USD. Long term bad for the dfi-price.

[defiprop]

In general I think the idea of bringing the prices of dTokens (DUSD and Stocks) closer to the real world prices is noble. However, I do not like the idea of giving all the "out-of-thin-air"-generated tokens exclusively to the vault holders. This will expropriate the token holders (as the central bank money printing expropriates savers in the real world currently). Either should the tokens be inflated equally or nothing should be done. Sure, the vault holders would "win". But why should the token holders (most probably providing liquidity to let the DEX run) be punished by only devaluating their tokens (for which they paid a premium in order to help by providing liquidity)? They were willing to pay that premium in order to give a service to the DeFiChain. Now you want to manipulate the system (in an unfair way by which only the vault holders are compensated for token devaluation) and screw the token holders? Do they really deserve this?

[DTenere]

I also do agree to the most of you.

I figured there are three main opinions:

1. dToken have different value (higher) due to the additional functionality’s I agree one can see it that way and it’s a valid point. And also, there is some balance now in the pools even if it was not intended like this, its balanced. But I also think the arguments that dTokens (including dDUSD) should be arbitraged out to the oracle value. So, one can hold it, for e.g. a Stock share. That was the intended behaviour. And we all can see that it’s not happening so what’s the prob?

2. dTokens (including dDUSD) should be arbitraged out In my understanding this was the intended behaviour. And I think, like many of you, the reason is the ratio of the collateral. To mint (short) a dToken. If you need to put in at least 50% more capital (150% collateralized vault) to short for arbitrage it’s just too expensive. What I mean by expansive is the opportunity cost by locking up the collateral in the vault. I think for minting a dDUSD (or maybe even dToken) a vault with 100% collateral should be enough, or close to 100%. I think that’s the way to go. I know it will have maybe some other problems which needs to be discussed. But I just can’t understand why shorting is so expensive (more than 50%, mostly 100-150% to prevent from liquidation) compare to going long. If you want people to short (arbitrage) it needs to be attractive to them. Shorting have almost the same cost as buying a stock on a conventional broker. So why should it be different here?

3. fixing approach with interest I think this is a good Idea too. But as many pointed out with different arguments this will most likely cause more problems. If something doesn’t work it will be bad for the community. We should analyse and understand the root cause first. Until then leave the pools balanced like they are. This is a really critical point for the community. To introduce something fast here which is not solving the root cause may be dangerous and causing harm.

Thanks for reading my thoughts. I am new to this but I have Skin in the game and I just want the best for the community.

[defiprop]

@DTenere very good sum up. I think the root cause for the premiums are mainly the high rewards one gets for liquidity mining. If there weren't these additional DFI, dToken-LM would be less profitable and thus the prices for dTokens would be significantly lower. Sure, there are other incentives to go into dTokens (re-balancing portfolios out of crypto without all the annoying KYC, less third party risk, tax incentives by governments that do not tax capital gains when made by Tokens, just to mention some). Anyway, I see the whole discussion going into the right direction and hope that in the end the community understands the difference between stable tokens and dTokens and will let the market work on adjusting the prices. This will come automatically when the rewards are getting closer to 0.

[blttgrst]

Hey there,

after the launch of Fort Canning and the possibility to create vault, I made some thoughts about my investing strategy on my own, despite the vids on youtube, etc. I thought, what happens, if more people wants to sell DFI for DUSD to get into stocks? Especially the cake-users, which can´t do anything else so far. My first answer was, that they would "dump" the DFI-DUSD-Pool and take some disadvantage of an non-equal pool. How can the other side work against that sell-pressure and what happens, when they do. As Daniel Zirkel mentioned in his tutorial, arbitrage is only working over time, so you have to wait. But how long? Would I buy even more "cheap" DFI to wait for it? I won´t could go back than. After it turned out that exactly his case happened just in the first day, I was sure, that this is a problem in the system.

Here is what I see: Why is it possible to sell "crypto"-DFI to stock-token via DUSD, when there is the convenient way of a vault, where you also can long/neutral/short the stocks? It doesn´t matter, where you sell DFI. You are selling it. A gateway to stocks only through vaults, would create the stocktoken and DUSD and leave it closed in the system. It can´t be traded outside anyway. The other way would be, that every stock-token could be traded in an e.g. DFI-dTLSA-Pool. So when you arbitrage the DFI-DUSD-Pool, you can than sell it again for a stock-token and the circle would be closed.

So there are two options:

Closed system in the blockchain itself by getting stock-token only through by minting DUSD or the stock-token itself to tether it. Opening the system by starting for every stock-token an DFI- and a DUSD-Pool. I think going back to Option 1 would be very difficult now, but in my point of view would it be the best. In option 2 we have to split the rewards (of course) for the corresponding DFI-Pools. This option would also make it easier to get stock-token without DUSD, but of course the liquidity-miners have to deal with a bigger impermanent loss. Therefore the APR would be higher probably balancing the risk.

To interupt the current system with even more complex regulations of interests and untethered token is in my opinion a fundamental no-go of a blockchain.

A solution for option 1 would be to close the DFI-DUSD-Pool in the direction ob DUSD to DFI. Then afterwards also for DFI to DUSD and just let anyone who needs DUSD token for a gap of his loan an his current holding token in the LP and only as a token to get DUSD and the dToken to fill it up for the current oracle prices. Then close the DFI-DUSD-Pool completely and give the rewards to the rest of the dToken-Pools. This would pump the price as hell, too.

There should also be no dToken and DUSD lost through the process.

[goscha80]

I think the main idea is to let DFI be the Util-Token/Coin. On the other hand the goal is to create a subsystem for Stocks with a stable coin on the base (dUSD). So you dont have to sell your crypto, when you get a loan for it. Is a great idea in my opinion. But in the subsystem act the dUSD token as the Utility-Token. And this is the main Problem we have two systems with two Utility-Token. To enter the Subsystem we can use the Oracle-Price by creating a dUSD-Token or stocks. This is fine but there is no way to leave the subsystem by the oracle-price. So the price will be defined by the supply and demand. So we have only oneway arbitrage. And when you look at the liquidated vaults you will see where the way out of the subsystem is. In the liquidation process. This is what is happening now. The only way is to give the arbitrage-traders the tools they need to leverage the pools to the oracle-prices. As i described in my intial post. This would be a quick fix for the Problem without changing the whole system. And it will give us enough time to think about a better solution. There is no reason for the prices to follow the real world prices in a closed subsystem. I mean without a fully functional arbitrage-trading according to the oracle prices.

[defiprop]

@goscha80 I agree. The most important feature of DUSD (as well as dTokens) is that they are stable w.r.t. their real world counterparts. If there is a premium, who cares? The premium will (slowly) drop over time. If I want to make a trade for let's say two weeks, I will get (most of) my premium back, if the trade is long term (say buying "gold" for surviving the crypto-winter during 2022), I either loose (parts of) the premium or diversify further into DUSD additionally to be able to do LM on DUSD-dGLD. In the end, I have my exposure to changing real world asset prices. The most important thing is that I get the exposure to real world price changes, the nominal value of the tools I use for having it does not matter in any way.

[benameless]

(SKIP THIS, if you want an educated post, these are my thoughts)

To be honest, i am a little bit shocked, that in planing this, it seems there have been missing expert economics. Involve some experts, excluding people like me or people saying dUSD has to be a stable coin, just because the name maybe falsely indicated it. Complex problems like this, are not solved by twitter and many voices. In cases like this, even democracy/decentralization can be a chance but also a big problem, when masses decide on complex challanges. So far I like what i read, but who am I to know about it. If the interest of some is only to have a cheaper dUSD on Cake, then i do not think that is the right approach. Understand the root problem, and then think through possible ways to solve it. If there is a way currently to get free profit with someones own auction, then this is like exploiting the intended purpose. To me, the explanation of "150% collateral brings 30% higher dUSD price" makes sense. I hope we do not screw this up.

(Continue your discussion)

[blttgrst]

As I think about more and more, I don´t see any other option as closing the dToken Trading into an own system, without trading DFI-DUSD directly with a pool. But I think we do need more changes. So: What do we want: We want trading of stocks, ETFs etc. by tethering it through crypto. When the stocks go up, we do need more colleteral, each person for it´s personal vault/loan. Are the stocks going down, we could possibly take colleteral out.

Vaults/loans should be the only way to get the dToken or DUSD. Now this DUSD-Token is fixed to 1 Dollar price through the oracles. What is happening now: Through trading on the DEXes some people will have less dToken or DUSD, than their loan is, and some will do have more. The users, which have more could pay their loans, but can´t get the value out of the closed system through a regular DEX. On the other hand, there have to be some people, which don´t have enough colleteral or lost some dToken. The can´t pay out their loan to get the colleteral back. Therefore they could be liquidated, when prices do have strong price actions or they can sell a bit of their colleteral on an marketplace for getting their missing dToken. The liquidation-process also should be not liquidating the whole loan, but percentage wise, when there isn´t enough colleteral given. What do you think. Am I completely wrong?

[Rno123]

I think I've got a simple idea that should work without over complicating things. Have a usdt or usdc backed vault for minting DUSD/dTokens with a 101% collateralization ratio (or even 100.5%) with a 5-10% APY. This shld allow the price of minted assets to converge to oracle prices with negligible risks, since the underlying assets are at the very least, stable. This way arbitragers pay roughly 1% premium to arbitrage and the DUSD and dTokens peg to return to roughly 1% difference in oracle prices.

Personally still like the funding rate idea cos that's gonna be less impactful on price short term.

[goscha80]

DUSD-Token is fixed to 1 Dollar price through the This is the point. There is no fix to 1Dollar. Just at the creation time. When the worth of DFI rises, we lose the correlation. There is then more worth of DFI in the dStock-System then dToken where created (to hold the correlation). The worth of DFI has to leave the Subsystem. But there is no intended way out. The pressure ensures that the price of the DFI goes down until a critical point defined by smallest vault model (150% 1/3). approx. 30% under the oracle price. And finally leaves the system over the liquidation process. So we have to create a controlled way out (my proposal in the initial comment), or we can print more dStocks to balance the worth between dStock and DFI in the subsystem (the proposal from uzyn). But this is not done with only dUSD in my opinion. Both ways have pros and cons.

[goscha80]

I think I've got a simple idea that should work without over complicating things. Have a usdt or usdc backed vault for minting DUSD/dTokens with a 101% collateralization ratio (or even 100.5%) with a 5-10% APY. This shld allow the price of minted assets to converge to oracle prices with negligible risks, since the underlying assets are at the very least, stable. This way arbitragers pay roughly 1% premium to arbitrage and the DUSD and dTokens peg to return to roughly 1% difference in oracle prices.

Not bad. But in case of you would have two ways in the dStock-System. And one of them would bypass the DFI-Coin and decrease the demand.

[Rno123]

I think we can move ahead with the DUSD vault first, considering that the relative liquidity size should see some sell side pressure from people arbitraging. I strongly believe that DFI shouldn't be propped up by incentives and an illiquid market (like it currently is) and having a vault to bypass DFI isn't the worst idea imo.

[legendarytuna]

ok guys hear me out.

What if we remove the necessity of DFI for minting DUSD and make a 100% loan scheme available. DUSD should in this scenario mintable (not exclusively, but at a bare minimum) with USDT and USDC. DUSD could be pegged to outside-of-defichain stablecoins.

Although the premium for DUSD can be explained as a reflection of supply and demand, I think it is also a reflection of the market entry price. Or in other words, the opportunity costs of minting vs “buying into a DUSD-dASSET Pool” via the DEX.

Theoretical example: I mint DUSD and dTSLA at a bare minimum collateral of 150%, only 66% of my capital can “work” for me/generate rewards. Therefore everyone getting into a DUSD-dASSET Pool at a cheaper rate, buying both, DUSD and a dASSET token for a combined premium lower than 33% can make a better deal. Looking at the DUSD-DFI pool, we can think this through the same way: DFI (binds no extra capital), DUSD (binds at least 150%). So minting binds at least 16,66% of your capital. What kind of interest should fix this disadvantageous situation? How high should the interest be? will it raise the further DUSD strays away from 1$? How fast do you think this mechanism will bring DUSD down?

By removing the capitalbinding for DUSD we open up the dASSETS. They are connected to an out-of-crypto price. Their price is not designed to be stable. Of course, they will still bind capital and therefore generate a premium. But by removing the burden of an entry barrier, arbitrageurs will also get more efficient and capital can move more freely. As I understand the whole concept/feature, the dASSETS is what makes DeFichain special - not a kind-of Frankensteins Stablecoin.

I know this approach is super weird, somewhat radical and will definitely be disruptive for the DFI price, because it would remove a huge Demand on DFI. Maybe other solutions are way easier to implement, or I am completely overlooking something and my conclusions are completely wrong. Feel free to enlighten me. I just wanted to contribute something to the discussion.

edit: it seems that, while i was writing and translating my thoughts, rno123 came up nearly the same idea.

[blttgrst]

Because the price of DUSD can´t be fixed to DFI, we should close the dToken-System in a Subsystem, which only can be entered via vault (interest an colleteral may be adjustable) and through a marketplace-/liquidation-system, which is fair and transparent. Then we can can ensure a price stability of the dToken and DUSD AND a way out of the worth in it to the DFI-System. A DEX for that isn´t the right way and we simply don´t need the possibility of leveraging DFI through this.

[ScharnJan]

What I have learned about the congresshearing this week is the importance of stable stablecoins which have to be very clear for the end costumer. Means if you call something dUSD it has to be close to USD otherwise normal customers will get led astray. This is why we need a possibility to let 1 dUSD= 1USD and 1dTSLA=1TSLA! I thougt a long time of the suggestion to do something like a USDC-dUSD pool but then we will loose the demand for DFI. On the other hand doing something like negative interest rate sounds for me like regulating the market like all central banks do. If we do something like this the whole crypto family will kick us in the ass. In my opinion we need a system for the arbitrage guys to earn money on the price differences. At time we do not have a system for them to do so because there is only a one direction pool. To arbitrage you need at least one second way to close the circle. What if we will just ad a pool for every dToken to DFI. Implementation should be easy. In this case it is easy to arbitrage because you can swap from dUSD to DFI then from DFI to dToken and back to dUSD. The portion of each token inside the pools is then changing with every swap until the dex price will meet the oracle price. When the dex price is lower than the oracle price new token will be swaped to the pool. The market regulates itself and demand for DFI is eaven higher.

[RomanShumkov]

On the other hand doing something like negative interest rate sounds for me like regulating the market like all central banks do. If we do something like this the whole crypto family will kick us in the ass.

The problem with central bank stimulus is that only limited amount of individuals can take advantage of low interest rates.

On defichain this is not the case. Anyone would be able to earn negative interest rate. Even with 1 DUSD loan - rules are the same for everyone.

As long as we have an automated algorithm for adjusting interest rates (both positive and negative rate) and every single defichain user is treated equally and can participate in this process, I see no issues with doing that.

We have created huge incentive for buying DUSD and other dTokens by introducing block subsidies for liquidity pools. Offsetting that with something like negative interest rates seems more than logical to me. Otherwise we have unbalanced supply and demand.

Saying that market is balancing itself at the moment is not correct, since we are stimulating the market in only one direction by subsidising rewards in liquidity pools. For market to be balanced we should either remove LM block subsidies or introduce some algorithm to offset the block subsidies (negative interest rates).

tl;dr yes for negative interest rates

[DTenere]

I think I've got a simple idea that should work without over complicating things. Have a usdt or usdc backed vault for minting DUSD/dTokens with a 101% collateralization ratio (or even 100.5%) with a 5-10% APY. This shld allow the price of minted assets to converge to oracle prices with negligible risks, since the underlying assets are at the very least, stable. This way arbitragers pay roughly 1% premium to arbitrage and the DUSD and dTokens peg to return to roughly 1% difference in oracle prices.

Not bad. But in case of you would have two ways in the dStock-System. And one of them would bypass the DFI-Coin and decrease the demand.

I also had thought like this. But it doesn't matter which kind of capital you use to back a vault. It's backed. And currently it's backed with 50% DFI which is increasing demand. And if the collateral goes down you get liquidated. I think should be fine.

[DTenere]

On the other hand doing something like negative interest rate sounds for me like regulating the market like all central banks do. If we do something like this the whole crypto family will kick us in the ass.

The problem with central bank stimulus is that only limited amount of individuals can take advantage of low interest rates.

On defichain this is not the case. Anyone would be able to earn negative interest rate. Even with 1 DUSD loan - rules are the same for everyone.

As long as we have an automated algorithm for adjusting interest rates (both positive and negative rate) and every single defichain user is treated equally and can participate in this process, I see no issues with doing that.

We have created huge incentive for buying DUSD and other dTokens by introducing block subsidies for liquidity pools. Offsetting that with something like negative interest rates seems more than logical to me. Otherwise we have unbalanced supply and demand.

Saying that market is balancing itself at the moment is not correct, since we are stimulating the market in only one direction by subsidising rewards in liquidity pools. For market to be balanced we should either remove LM block rewards or introduce some algorithm to offset the block subsidies (negative interest rates).

tl;dr yes for negative interest rates

Introducing interest rates is like having a Crack in the foundation an put paint on it. We should understand the root cause and fix it. Acting like a central bank is like putting more and more paint on the crack until the foundation eventually breacks. It's too expensive to short. And only through shorting you can arbitrage. That's why no one do Arbitrage (to the expected value e.g. DUSD).