Set a minimum percentage amount held for each asset in the basket proportional to all other assets in the basket to increase representation of every stablecoin in the basket and avoid having assets completely drained from the basket while having others overrepresented.
This proposal sets a minimum percentage amount with each asset that cannot be withdrawn via redemption or swap proportional to the weight of all other assets in the basket in order to guarantee a minimum amount of representation of each of the assets in the mUSD basket.
The current situation is a mix of 2 or 3 different assets being overrepresented in the basket, while the other ones are underrepresented or non-existant in the basket due to volatility and arbitrageurs taking advantage of the swap and redemption feature.
This proposal would ensure that a minimum percentage of each asset is contained in the basket, regardless of volatility or fluctuations on the market, and give a more accurate representation of what a unit of mUSD should be.
If mStable wants to truly be a mix of many of the current stablecoin projects, it needs to have a representation of each asset in its underlying basket. Due to the nature of a decentralized stablecoin being naturally more volatile, I propose that a limit is set in the code to stop withdrawals from that part of the basket within a set treshhold (perhaps between 5 to 10% of the total volume represented in the basket).
I have seen DAI being mentioned as dead weight in the code of the basket, and right now this is true. It also becomes a more centralized coin overall if we do not secure a basic amount of stability in each asset in the basket.
There is no mutual benefit for mUSD holders to being able to withdraw all underlying assets without keeping a proportion in regards to the total weight of the basket. Having a reserve in the basket of each asset seems mandatory to ensure diversification, and this number should be maintained as the basket grows and shrinks, proportionally to all the other assets in the basket.
There is already an upper percentage limit of how much of a stablecoin the basket can contain, so it seems logical to also implement a lower percentage limit of how much of a stablecoin it should contain.
- Better diversification of the collateral within the basket
- Better representation of a truly mixed stablecoin
- Safeguard against a failing peg of a different overrepresented asset
- A more professional looking front-end representation of the basket
- Better options of future yield farming integration that would otherwise not be possible (due to a lack of a basic collateral in form of DAI or a different stablecoin)
- More safety for MTA token holders in case of a peg failure
- Easier to negotiate with other platforms about integrating mStable, as more assets are truly represented and cannot be manipulated out of the basket
- More limitations with redemptions
- More limitations with swaps
- Might take a while to reach the recommended minimum allocation unless incentivized by the protocol (maybe with more mUSD generated per underrepresented asset until treshold is reached)
- Might over/de-value the mUSD due to impossibility to swap/redeem all of the underlying collateral of one asset
Looking forward to hearing your thoughts. This has been something that bugged me since the inception of the protocol, and as I picked up a nice chunk of MTA today, I felt it was finally time to get some feedback and thoughts to see and understand better of why this might have not been considered before, or why it should or shouldn’t be considered now.
Happy Friday and enjoy the start into the weekend guys!