Proposal: Modify DBR Replenishment Incentive & Increase DOLA Ceiling for gOHM Market

Forum: https://forum.inverse.finance/t/modify-dbr-replenishment-incentive-increase-dola-ceiling-for-gohm-market/301

Summary

Reduce the DBR replenishment incentive on the FiRM gOHM market from 5000 bps (50%) to 1 bps (0.01%). Also, increasing the DOLA supply ceiling by 10 DOLA to 5,000,010

Background

Due to insufficient DOLA liquidity in the FiRM gOHM market, the DBR replenishment function faces disruption. This proposal aims to resolve this through a change in the DBR replenishment incentive and an increase in the DOLA supply ceiling.

When a borrower on FiRM runs out of DBR (enters a DBR deficit), any wallet can replenish the account, which mints new DBR to the borrower's wallet to bring their balance to exactly 0, at the cost of 0.5475 DOLA per DBR which is added to the borrower's debt balance. There is a replenishment incentive, which passes on some of that additional DOLA to the wallet that calls the replenishment function. This however introduces a problem, as there must be DOLA liquidity within the FiRM market in order for it to be possible to transfer the incentive in DOLA. This means that when there is insufficient DOLA liquidity in the market, it is impossible to replenish borrowers when the DOLA incentive exceeds available liquidity. In order to mitigate this issue, the Fed Chair has been conducting the majority of the replenishments on the gOHM market recently by minting new DOLA into the market, and replenishing accounts in the same transaction. You can see a history of replenishments on the transparency portal here.

Currently, the amount of DOLA that the FiRM Fed has supplied to the FiRM gOHM market is very close to being at the max. The supply ceiling for the gOHM market was set to 5,000,000 DOLA by DAO governance. At the time of writing, 4,999,598 DOLA has been supplied to the market. With 2 accounts currently in DBR deficit, burning 1627 DBR per day, given the 5000bps replenishment incentive it is expected that replenishments will no longer be possible in the gOHM market (assuming 0 debt is repaid) from 8am UTC, September 12th.

Objective

In order to solve the problem outlined in the background, this proposal seeks to reduce the replenishment incentive on the gOHM market to 1 bps. This will allow for replenishments to happen even with minimal amount of DOLA liquidity in the market. This proposal increases the supply ceiling to the gOHM market by 10 DOLA incase DOLA supplied is equal to the current ceiling of 5,000,000 at the time of execution. This provides a small buffer, that at 0.01% replenishment incentive should allow for significant replenishments. It is recommended that the Fed Chair only mint tiny amounts of DOLA into the gOHM market to reduce the chance of a borrower purposefully borrowing all liquidity repeatedly in order to make replenishments impossible again.

Who Will Complete the Replenishments?

Given the replenisher now gets almost 0 DOLA fee for completing the incentive, it seems there will be little reason to spend the ETH gas to do so. However, given the high profit to the DAO treasury (~6240 DOLA per week), DAO contributors will monitor the market and conduct replenishments when necessary.

In addition to this, as long as there is a liquidation incentive, there will always be organic external demand to complete replenishments eventually, provided its possible. This is as the replenishments will eventually make a loan position liquidatable, leading to profit for the liquidator due to the liquidation incentive.

On-Chain Actions

• setReplenismentIncentiveBps of FiRM gOHM market to 1 bps
• changeMarketCeiling of gOHM market to 5,000,010 DOLA