[IP] eUSD Backing Buffer Change 0.15

Electronic Dollar (eUSD) eUSD RFC
1

Summary

Increase the backing buffer from 0.1% to 0.15%.

Current backing buffer:

0.1%

Proposed backing buffer:

0.15%

Abstract

Currently the backing buffer is set to 0.1%. If enacted, this proposal would change the backing buffer from 0.1% to 0.15%.

The backing buffer is a percentage value that describes how much extra collateral to hold in the BackingManager. This can be important for preventing RSR seizure during normal rebalancing as a result of trading slippage.

Problem Statement

If the backing buffer is too low, this can result in RSR seizure during normal rebalancing. It’s possible to get into a situation where RSR stakers begin individually unstaking before rebalancing proposals in order to avoid being slashed. The backing buffer should be high enough to prevent this outcome for expected rebalances.

If the backing buffer is too high it can cause RToken and staker yields to become too sensitive to supply changes; new issuance creates a hole that must be filled in before revenue handout can resume, while new redemptions cause the excess capital to be immediately realized as revenue.

It is not important to consider the backing buffer for default scenarios, only governance-led rebalances.

Rationale

There is a collateral basket change proposal on the forums for eUSD and this proposal aims to prevent any RSR seizure during the rebalancing(this is not a guarantee). Additionally, the goal is to align the backing buffer with the recommended value in the documentation.

Risks

In the time of market turmoil, which can lead to low liquidity, slippage can occur during a rebalancing period, this could potentially lead to slashing to RSR stakes.

The risk of keeping the backing buffer too high is that RToken and RSR staker yield can be volatile.

In relation to the eUSD collateral basket change proposal it is unlikely that this change comes with any slippage because it’s just a withdrawal from one protocol(Compound USDT V2) and deposit into another(Compound USDT V3). However, it still offers a small amount of value to RSR stakers to raise the backing buffer before executing the collateral basket change proposal.

Untitled (200 x 200 px) (1)
Untitled (200 x 200 px) (1)200×200 9.16 KB

  • Yes, I am for this proposal
  • No, I am against this proposal
0 voters
2 Likes
2

Thank you for this important proposal, Tom!

3

Thank you for this Tom. I understand this will likely reduce the risk of RSR seizures as recently happened for hyUSD on Base (at least, I think that is what happened). It feels increasing the backing buffer makes sense from that perspective.

As for the proposed backing buffer%: you mention the goal is to align with the recommended value. As I read the documentation, there is no recommended value, only a default value. Additionally, the documentation states is should be set based on:

(i) how many days of yield will it take to fill the backing buffer (ii) the expected loss due to slippage if the least-liquid backing collateral is removed; and (iii) the sensitivity of RToken holders to variance in their yield. .

I am going way out of my depth and understanding if I try to assess whether 0.15% is the best value to pick based on these three driving factors. So I do have to assume you have done that and involved the right expertise to get to this value. Voted in favor.

1 Like
4

The poll is closed and this proposal has been moved onchain.

Link to onchain proposal: Reserve Register - Reserve Protocol Interface

1 Like