Summary
Change 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 USD3 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
If the backing buffer is too low, in times 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 USD3 collateral basket change proposal it is unlikely that this change comes with much slippage because there is deep liquidity in the underlying assets that are being swapped. However, it still offers a small amount of value to RSR stakers to raise the backing buffer before executing the collateral basket change proposal.
- Yes, I am for this proposal
- No, I am against this proposal