Increase Max Rate of Virtual xy=k DBR Auction

Forum Post: https://forum.inverse.finance/t/3-increase-max-rate-on-virtual-xy-k-dbr-auction/577

Summary

This proposal increases the annual issuance cap that the Fed Chair can set for the virtual xy = k DBR auction from 50 million to 100 million DBR. The higher ceiling allows issuance to scale with FiRM’s record-high debt, while DBR’s current issuance policy ensures supply growth remains self-correcting and safe.

Quick primer — how DBR issuance works

Why issuance matters: Borrowers must burn ≈ 1 DBR per 1 DOLA debt per year. Too little issuance and debt growth stalls; too much and borrowers hoard cheap DBR, weakening the peg incentives.

How issuance was handled before March 2025 (“peg-only” rule)

We target a skew of DOLA in DOLA liquidity pools, which is dictated by DOLAs peg (with the lower the peg, the higher its skew).

Logic

• If DOLA skew > target skew ➜ protocol issued more DBR than was burnt that day
• If DOLA skew < target skew ➜ protocol issued less DBR than burnt
• No reference to how much DBR was already sitting in wallets (the “inventory”).

Outcome

• A long stretch of strong peg (so skew > target skew) in mid-2024 meant net issuance for months → inventory ballooned to > 400 days of coverage.
• Cheap DBR removed urgency to buy in the auction → debt growth actually slowed despite higher ceilings.

The March 2025 fix — dynamic-inventory policy

Results four months in:

• Inventory collapsed from ≈ 400 days → ≈ 40 days, while FiRM debt quintupled.
• Auctions stayed active, DBR price remained firm, and no manual “emergency” stops were needed.

Rationale for Doubling the Auction Ceiling

FiRM’s debt load has expanded from roughly $15 million in November 2024 to more than $80 million today—a five-fold increase. Yet the virtual auction is still constrained by the original 50 million-DBR-per-year cap set when debt was a fraction of its current size. As a result, the auction is operating near its limit most days; any further growth in debt will push the system up against a hard ceiling that throttles new issuance even when market conditions call for it.

At the same time, the March 2025 dynamic-inventory policy has eliminated the over-issuance risk that characterised 2024. Inventory (measured in “days of DBR coverage”) has fallen from the dangerous 400-day peak to a healthy 30--50-day band, and it has stayed there for four months despite record debt expansion. The policy’s built-in taper ensures that if debt growth slows—or if DBR begins to cheapen excessively—issuance automatically scales back toward zero well before inventory can bloat again. In short, the control system is doing its job: more issuance only flows when the peg is strong and inventory is below target.

Given those two facts, debt five times larger, and a proven self-correcting issuance rule, it is both necessary and safe to raise the ceiling. The change is entirely parametric: the Fed Chair still adjusts the dial in real-time, but now has up to 100 million DBR per year of headroom, instead of 50 million. All other issuance channels (INV staking streams, sDOLA auctions) and all existing safeguard logic remain untouched.

By approving a new 100 million DBR-per-year ceiling, the DAO equips FiRM to keep pace with its own growth, continue funding incentives and bad-debt reduction, and do so without compromising peg stability or over-issuance discipline.

On-Chain Action

• Set maxDbrRatePerYear to 100m