Editor’s note: This article from the blue fox notes (ID:lanhubiji), the author: Primoz Kordez, compiled: Sien, authorized to release the daily planet.
Objective: a few days ago, Maker DAI’s stable fees from increased from 0.5% to 3.5%, DAI to 1 to stable the value of the dollar, even so, still less than $DAI 1, it was suggested that the stable costs continue to increase to 4%. It is decided by voting governance in the interest rate it is the problem of slow reaction process. What Maker should be how to operate more appropriate, whether through the analysis of standard way to observe?
Stable fee is used ETH borrow DAI policy interest rates, and whether it is appropriate to reflect the market dynamics within the MKR ecosystem? This point is controversial in the current. MKR mode of operation is such that it is not stable fee market definition, but by voting to determine, but the vote is to the center of the way.
I think the best way to any asset allocation rate is a market signal. For MKR, this means that we should see similar products, users of these products through mortgage borrowing ETH assets, interest rate under ideal conditions is completely defined by marketing.
Time in the evaluation of MKR system stability, we monitor both important parameters:
1. collateral market risk
2.DAI supply and demand supply from bond traders and market makers, while demand from the use of DAI or DAI and DApp lock holding DAI hedge people (with respect to Tether).
Remember, those who create CDP remove the DAI and use it to buy the goods (leaving) only net zero effect, because the created supply has a corresponding demand. As mentioned above, if the supply of DAI increases and is not passive holder or ecological system used by the DAI offset (blue fox notes: that is, the market maker will pile up in excess of requirement) by closing the CDP to reduce the supply, to obtain profits and promote DAI back to its anchor value. (before the blue fox post notes “Dai: stable, but not easy to expand” is that professional arbitrage is unlikely to set up more demand from mortgage lending or leveraged transactions.)
The same is true for bond traders, they took DAI to buy ETH, to do more. Some people need to buy and hold the DAI, otherwise there will be oversupply, resulting in DAI fell below $1, resulting in a market maker in the anchor value of inventories increased security.
The collateral market risk by giving specific tokens valuation to qualitatively measure, the risk premium is qualitative measurement of collateral, the collateral risk premium for liquidity and other parameters such as correlation risk or exposure to adjust.
Specific asset risk premium is usually extracted from the past price fluctuations, although I think this method is not suitable for encryption currency fluctuation mode encryption currency changing. The implied volatility is the preferred index here, but we did not improve the ETH derivatives market, not to mention the other ERC20 assets.
Another alternative measure of the risk premium on other money market. From the data, Compound DApp is more obvious, it also has a similar CDP, also have the same 150% excess charge, but the borrowing rate is defined by market participants, although not so completely. Using the Compound algorithm to define the interest rate formula to calculate the interest rate by using data from the market supply and demand. You can say that the market determines the rate of Compound, but only realize to a certain extent.
Please note that compound is not much liquidity, so is not as ideal standard MKR analysis. All ETH lock in Compound reached about 30 thousand, only 1.5% of total ETH or MRK lock.
Assuming that the Compound interest rate completely by market definition, and try to use them to indicate the DAI lending market interest rate. Please note that the loan in Compound DAI, most of the REP, DAI or ETH to mortgage. We expect to borrow DAI rates are slightly higher.
The following is from Vishesh Choudhry extraction from Compound data. You can see the loan interest rate of DAI in the past few months in 8% – 10%, which is almost 10 times of DAI release by CDP. This means that the market participants are willing to pay more to borrow DAI, and at the same time also need 150% excess mortgage. In other words, they pledged to ETH more optimistic, giving it a higher risk premium, and expect to get in return.
When trying to benchmark lending rates ETH mortgage lending products, we can focus on the other big ETH money market, in order to find out the risk premium associated with ETH. One obvious candidate is the center of the exchanges (such as BitfinexPoloniex) to provide the money market, the tokens lent margin traders.
In the current Bitfinex and Poloniex lending out approximately 300 thousand ETH (about MKR lock ETH amount of 15%), the interest rate is about 1.5% and 8% respectively. In the past few months, Bitfinex ETH lending rates in the range of 1%-10%, the Poloniex is 3%-50%.
The market tells us that the estimated ETH risk premium and the expected return is higher than MKR. In addition, if you want to create more leverage ETH exposure (similar to the CDP owner of the MKR to do the USDT in the current year), borrowing will spend 10% of the cost.
However, compared with the MKR and the center of the exchange of money market interest rates is not the best method of benchmarking. Like the Bitfinex exchange, a bond mortgage benefits (only 15% margin); people are usually willing to take advantage of higher interest rates.
However, compared with the creation of CDP and removal of DAI, they will get the same benefits still contact center counterparty (discount), and also to hold tether (another discount). On the other hand, MKR to the center of the advantage, no counterparty risk, but there are also some risk of black swan events, such as the layer associated with the etheric Fang and risk intelligent defect related contract.
When trying to assess ETH mortgage borrowing asset risk premium, the underlying object can be very limited. The center of the exchange is currently the most mobile place, can do such analysis, but obviously because of reasons, these analyses cannot be used as a suitable benchmarking analysis, especially when evaluating the risk premium, and the correct assessment fee will contribute to the stability of the MKR decision.
Like the Compound DeFi DApp is more appropriate, but we need to wait for them to grow up, need to have sufficient liquidity, the need for greater market participants, the appropriate signal so as to represent the market. In addition, please also note that stable fee is a wider range of factors, and mortgage risk and DAI by only two.