Rationale
Following the recovery of the VAI peg and increased VAI activity, this VIP enables VAI minting for Venus Prime token holders and adjusts the baseRate in line with the borrow rates of other stable coins on the protocol.
References
Summary
Following the recovery of the VAI peg and increased VAI activity, this VIP enables VAI minting for Venus Prime token holders by increasing the mintCap to 10M (from zero) and increasing the baseRate to 7% (from 3%).
Motivation
This VIP is a follow up to our prior recommendation to enable VAI minting. The positive trends mentioned in the previous post have continued to improve and stabilize, and as such we’d like to re-introduce a proposal for enabling VAI minting for Venus Prime token holders.
The VAI peg has stabilized and the tracking error has now been reduced to nearly zero. This has been accomplished with the launch of the PSM and support for liquidity across both centralized and decentralized exchanges. Additionally, VAI trade volume has been in a steady upward trend, despite the inability to mint new VAI from collateral and organically grow the ecosystem.
This upward trend for VAI is accompanied by a marked turnaround in the supply of stablecoins in recent months, despite the ongoing unwind of BUSD. The total market capitalization of stablecoins across layer ones can be seen in the below graph:
With a stable peg and positive net balance in the PSM, we believe it is prudent for VAI to capture the positive momentum by re-enabling minting of VAI. We of course remain focused on maintaining the stability of the peg, and to that end, also recommend increasing the baseRate in line with the other stable coins in the Core Pool to prevent any sudden oversupply of VAI to the market.
Specification
Modification of this VIP:
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mintCap: 10M (from 0) -
baseRate: 7.00% (from 3%)
Risk Analysis
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Significant borrowings could deplete the PSM and impact the price of VAI
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BUSD is still used as collateral for some legacy VAI borrowing
let’s start again!
