The following RFC is made to propose to the DAO an interest increase on two different cauldrons in the Abracadabra Money line-up!
We currently have two interest-free cauldrons, WBTC and WETH. These cauldrons were used as powerful tools in the bull market to expand the $MIM monetary base and to grow usage but they now represent outdated tech and are costing the protocol money. The current stats and addresses for the cauldrons are as follows:
WBTC - 0x5ec47EE69BEde0b6C2A2fC0D9d094dF16C192498 (8.78m $MIMs)
WETH - 0x390Db10e65b5ab920C19149C919D970ad9d18A41 (1.77m $MIMs)
Every $MIM emitted from these cauldrons is injected into circulation and consumes the DAO’s limited SPELL set aside for emissions. We believe what once was a valuable tool to improve our user base and growth, is now something that we must improve. We’d like to utilise this $MIM to expand our presence on Optimism/Arbitrum where partnerships with Velodrome/Camelot/Rage Trade will allow the expansion of $MIM and new high yield strategies profitable for both users and the protocol.
One of the most important improvements we made in the V3 cauldron smart contract update was to make the interest rate adjustable. Unfortunately, the WBTC and WETH cauldrons are on an older version of the contract.
Despite this, after much investigation with the Abracadabra team, we now know that there is a way to increase interest rates on those cauldrons.
By using a “negative strategy” on top of those cauldrons, the DAO will be able to charge the current users an interest rate. Once applied, the negative strategy would begin shrinking user collateral, which is similar to increasing $MIM debt. Instead of repaying more $MIM than borrowed (due to interest fees), users will instead pay in collateral by removing less than they deposited. Unlike changes to performance fees or interest rates which were native functions of the newer cauldrons when launched, adding a strategy where there was none is a structural change to the cauldron requiring a vote.
Our proposal is to implement a negative strategy up to a maximum of 15% to encourage users to close their positions. If this proposal passes, there will be a 1 week period before the strategy is implemented to allow communication of the changes and for users to make plans to close their positions. After 7 days, the rate will be increased to 5% linearly over a 2 week period. From there, the team will assess the status of the cauldrons and determine whether further changes are needed. (Note: The protocol does not exceed the maximum rate of 15% on these cauldrons and will not increase the rate more than 2.5% per week, without further vote from the DAO).
The assets collected using this interest, will be treated as protocol revenue. We would like to ask the core team to specify exactly how often these rewards would be sold for more $MIM, from a technical perspective, to be used in the usual rewards distribution, before moving this proposal to AIP.
If and when users of these cauldrons repay their outstanding $MIM, the DAO would be able to utilise these $MIMs for more profitable cauldrons, and pave the way for growth of revenue.
The negative strategy was developed by the Abracadabra Core Team and was put on hold to complete security checks and DAO approval!
The strategy code can be found here.
Both of these cauldrons reside on Degenbox, so pushing this strategy should not be an issue.
The Strategy itself will be pushed to production, if the proposal was to pass.
It has parameters that are controlled by an owner, such owner will most likely be the big minting multisig (the 5 / 9) whose signers can be found here.
As with all of Abracadabra’s smart contracts, their code is fully open source and available for anyone to check in our GitHub repository.
To allow the protocol to react rapidly to future events, further increases to the interest of those cauldrons will have to go through the DAO, but in a streamlined process allowing for more flexibility, I think @0xWicked ’s idea provides great guarantees to the protocol stability, so I’ll include it
If needed, the community will have the ability to propose to the DAO an amendment to the current AIP in the following form:
This Proposal is now ready to be moved to AIP as AIP #12.
A Snapshot vote has been created here. Voting will start on the 1st of December 2022 12:00 PM EST, and finish 72 hours later.
The vote has ended, and AIP #12 has passed with absolute majority. More information on when the interest rates will be risen will be announced on twitter and discord!