SIP-2059: Legacy Spot Synth Migration
| Author | |
|---|---|
| Status | Draft |
| Type | Governance |
| Network | Ethereum & Optimism |
| Implementor | TBD |
| Release | TBD |
Simple Summary
The sip proposes a mechanism to balance the debt pool skew on L1 and prepare for the transition of spot synths to V3. This mechanism works by levying a funding rate on spot synths that track volatile assets. The funding rate is imposed via a rebasing system, whereby a discount factor is updated automatically every week during the weekly fee closing snapshot. The funding rate is set by governance. In future iterations, the funding rate may be set automatically based on the skew with respect to the size of the debt pool via a funding rate curve similar to the one specified in SIP-354.
Abstract
The funding rate - rebase mechanism aims to reduce the notional value of volatile synths, this will incentivise holders of volatile spot synths to exchange into stable synths that track fiat assets like USD and EURO. This will also reduce the debt pool skew and provide governance with the necessary levies to discourage future skew based on the state of the protocol. Rebasing takes place via an update to the discountFactor which is applied on volatileSynth.totalSupply() and volatileSynth.balanceOf(), therefore reducing the overall skeweness of the debt pool gradually. Funding is automatically disbursed to snx stakers as per the weekly debt reduction. The mechanism does not require migration of existing volatile synths, and funding is applied automatically.
Motivation
The legacy spot synths are overutilsed relative to their value to stakers, they produce minimal revenue and incur significant hedging costs for stakers. Spot synths in V3 have been redesigned to be more aligned with the interests of stakers, this proposal will immediately begin to reduce the debt pool skew, and the costs associated with stakers managing their debt hedging due to changes in the composition of outstanding synths. It also prepares for the migration of debt to V3 later in the year as new products are launched, including the upcoming L1 ETH perp.
Specification
The discountFactor starts in week 0 at 1. Should the system be configured to levy a funding rate of 30% per year for example, at the weekly fee period close, the keeper bot would update the discountFactor to 0.99423076923 which is computed as per prevailing_discount_factor*(1-funding_rate_per_year*weeks_since_last_update/weeks_per_year).
Test Cases
Pending
Copyright
Copyright and related rights waived via CC0.