We have one question on one statement in the post:
Could you please elaborate a bit more why you think PSM cannot ensure VAI not going below $1? As PSM is supposed to work and enforce the pegging, avoid big price swings in both directions.
The following are our responses to the key discussion points:
Peg Deviation: Given the current situation of VAI, it is an improvement if the peg deviation of VAI is within 50bps, i.e. the USD price range of VAI to be [0.995, 1.005].
feeIn feeOut:
Given our understanding of the PSM proposal, the initial position of PSM is that there will be USDT PSM vault. Currently the price of VAI is lower than USDT, a rational user will be more likely to swap VAI for USDT.
Thus, we suggest to set feeOut (swap VAI → USDT) higher than 10 bps, then set feeIn (swap USDT → VAI) at 0. By doing this, the swaps in both directions can be more balanced.
On VAI “Borrowing”
Our team really wants to differentiate the two concepts: minting and borrowing. We took the VAI borrowing mentioned in this post as VAI minting. For VAI minting to work better, our team has proposed improvements in VAI minting mechanisms in [IDEA] VAI Minting Mechanism Improvements. Some of our ideas are to isolate the collateral used in minting VAI, a lower CF for minting VAI and restrict asset types that can be used as collateral. These will make the fundamental value of VAI more solid. Will appreciate some of your feedbacks as they are all related to VAI.
Coming back to your idea of adjust the stability up. We think it is a good idea, we arrived at the same conclusion from a different perspective. Instead of looking at the interest rate when the price of VAI is at $1, we looked at the stability fee when the price is near the lower boundary of the desired range.
Take the range [0.995, 1.005] as an example, if price is at 0.995, the stability fee will be 1% + (1-0.995) *225% = 2.215%. This stability fee is not high enough to incentivise return/burn of VAI.
The stability fee model parameters were set up when the price of VAI was far below $1. It is time to adjust them. In addition to increase base rate, we want to propose increase the floating rate as well. [base rate = 3%, floating rate =1000%] seems a reasonable combination. If the price is at 0.995, the stability fee will be 3% + (1-0.995) *1000% = 8%. It is enough to incentivise return/burn of VAI.
The above is our analysis and thinking process. We welcome your feedback, suggestions and discussion. Thank you.