Summary
Change the backing buffer from 0.01% to 0.1%.
Current backing buffer:
0.01%
Proposed backing buffer:
0.1%
Abstract
Currently the backing buffer is set to 0.01%. This proposal, if enacted, would change the backing buffer from 0.01% to 0.1%.
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
The backing buffer is set too low, 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 large it can cause RSR 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
The collateral baskets are liquid and eUSD does not represent a significant portion of the underlying collateral.
Risks
The risk of keeping the backing buffer too low, especially In times of market turmoil, liquidity can be worse and higher slippage can occur during a rebalancing period, this could potentially lead to slashing.
The risk of making the backing buffer too high is that RSR staker yield can be volatile.
- Yes, I am for this proposal
- No, I am against this proposal