Summary
This proposal proposes to increase the backing buffer from 0.1% to 0.15% in order to reduce the risk of slashing from future collateral basket changes.
Abstract
This proposal advocates for an increase in the backing buffer from 0.1% to 0.15% to further protect RToken stakers against slashing events during future collateral basket changes. The backing buffer serves as a safeguard, absorbing potential losses for RSR stakers during rebalances. The necessity for this increase is underscored by recent events where the backing buffer was almost completely depleted during the addition of wsuperOETHb, highlighting the risks associated with maintaining an inadequate buffer.
The Backing Buffer
The Backing Buffer is an important RToken parameter which is designed to protect RToken stakers from slashing events during basket rebalances. The percentage value describes how much extra collateral is held outside of the RToken backing relative to the market cap.
The capital buffer is then used to absorb slippage associated with collateral basket rebalances, if not present the backing would shoulder this loss trigger an RSR sell-off to re-collateralise the basket ensuring RToken holders don’t incur a loss.
Setting the backing buffer parameter requires careful balance;
- If the backing buffer is too low RSR will be seized on every basket rebalance, potentially wiping out months of yield.
- If the backing buffer is too high RToken holders and stakers yields will become sensitive to supply changes since new issuance creates a hole that must be backfilled before revenue distributions can resume and new redemptions will trigger auctions selling off a portion of the capital held in the backing buffer temporarily inflating yield.
It’s important to remember that a one-size-fits-all approach cannot be implemented for backing buffer parameters since it’s a delicate balance for multiple factors including; (i) the expected loss due to slippage of the most illiquid backing collateral, (ii) the yield generation potential of the collateral basket and (iii) the sensitivity of RToken holders to variance in yield and slashing events.
More information about the Backing Buffer and other RToken parameters can be found in the Reserve protocol documentation here.
Problem Statement
Recently the bsdETH collateral basket was successfully rebalanced to include Origin Protocols wsuperOETHb. While this rebalance was successful and RSR stakers weren’t slashed during the basket change it was rather tight with over 80% of the backing buffer being depleted.
Rationale
Given the recent near complete depletion of the backing buffer in the last collateral basket change it is prudent to consider an increase to this buffer to mitigate against future RSR slashing events.
Keeping in mind the effects of an under provisioned collateral basket this proposal suggests a 50% increase in the Backing Buffer increasing it from 0.1% to 0.15%. With this parameter constantly being reviewed after every collateral basket change to ensure it is optimally provisioned, not too high to cause serve fluctuations in yield and not too low that stakers undergo a slashing event on every rebalance.
Short-term Yield Fluctuations
Under normal circumstances an increase to the Backing Buffer means RToken holders and Stakers alike would suffer a short term loss in revenue while the buffer fills, since all yield generated by the collateral basket is routed to the buffer until it’s filled again.
However with a recent reduction in the bsdETH market cap the backing buffer is currently sitting at $14,200 or 0.16% of the market cap meaning RToken holders and stakers would not suffer a drop this yield with this proposal. These assurances are on the provision that no auction is run on bsdETH in the time between posting this proposal and its completing on-chain vote.
If an auction was to be run in the interim we’d revert to standard operating procedure and loss of revenue would occur while the buffer fills. Under this model the backing buffer would take ~5 days to fill and resume yield streaming to RToken holders and RSR stakers, as shown in the graphic below.
Risks
There is no inherent risk to RToken holders or RSR stakers capital with this proposal only the potential drop in revenue while the buffer fills.
Summary
The backing buffer is a critical parameter designed to safeguard RToken stakers against slashing during collateral basket rebalances. The proposal suggests raising the backing buffer from 0.1% to 0.15%, given the recent near depletion of the buffer during a collateral basket change. By increasing the buffer, the proposal aims to mitigate the risk of slashing events while maintaining stability in yields for RToken holders and stakers. Importantly, the proposal recognises no inherent risk to RToken holders or RSR stakers’ capital, as the current backing buffer already exceeds the proposed adjustment, thus eliminating potential yield loss providing no auction is ran between now and this proposal completing it’s governance cadence.
Poll
- For Backing Buffer increase
- Against Backing Buffer increase
- I require more information