Summary
Increase the Degen ETH (dgnETH) Backing_buffer from 0.03% to 0.10%
Current Backing_buffer
0.03%
New Backing_buffer
0.10%
Abstract
This proposal recommends increasing the Degen ETH (dgnETH) backing buffer from 0.03% to 0.10%. The backing buffer determines the amount of extra collateral held in the BackingManager to absorb potential losses due to trading slippage during rebalancing. The current buffer of 0.03% is insufficient, posing a risk of a slashing event where RSR stakers may lose their stake if the buffer fails to cover slippage. Such a low buffer could also lead to preemptive unstaking by RSR holders, destabilizing the protocol. Raising the backing buffer to 0.10% enhances protection for stakers, aligns with industry standards, and ensures long-term stability for the protocol.
Problem Statement
Currently at 0.03% backing, the rate is too low and could cause a slashing event to RSR stakers. 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. If the backing buffer is set too low, it’s possible to get into a situation where RSR stakers begin individually unstaking before rebalancing proposals to avoid being slashed. The backing buffer should be high enough to prevent this outcome for expected rebalances.
Rationale
By increasing the backing buffer to the default value of 0.01%. RSR holders are incentived to stake Degen ETH knowing there is a higher backing buffer protecting its users. 0.01% is the default value for RTokens. The current buffer of 0.03% is insufficient and poses a risk of slashing events, where stakers could lose assets if the buffer fails to cover slippage. By raising the buffer to 0.10%, the protocol not only provides better protection for stakers but also prevents preemptive unstaking, which could destabilize the system. This increase aligns dgnETH with industry standards, ensuring it remains competitive and attractive to users while contributing to the long-term stability of the protocol.
Risks
Reward distributions could decrease for a period of time as the backing_buffer is filled reducing the distribution to staked Degen ETH (sdgnETH) holders. Generally for long-term holders this shouldn’t be an issue, but short term stakers will be affected.
- Increase the Degen ETH (dgnETH) Backing_buffer from 0.03% to 0.10%
- DO NOT increase the Degen ETH (dgnETH) Backing_buffer from 0.03% to 0.10%