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AIP-11: Adjust Stability Fee for AUSD to help restore peg

Background:

Recently, the price of AUSD has fallen below $0.95. One of the levers we have to help restore the peg is by adjusting the Stability Fee to incentivize some of the borrowers to buyback AUSD and return them, which would help restore the peg.

Rationale:

  • Stability Fee is one of the levers we can use to help increase / reduce AUSD supply which in turn will affect the price of AUSD
  • There isn’t currently enough revenue to restore the peg in a reasonable period of time.

Implementation:

  • In order to restore the peg, we would like to propose increasing the stability fees.
  • We would raise the stability fee to the level such that the net APR% for the avg. borrowers in the vault become approx. zero.
  • If these borrowers use AUSD to provide liquidity in the AUSD-3EPSLP pool, they will still be net positive (~6% yields) and earn money from staking.
  • However, if they use AUSD to “loop” or their positions have higher utilization than the avg. borrower, they will be incentivized to return a portion of their AUSD.
  • We will monitor and further adjust the interest rate as required (i.e., lower back down if peg is restored, etc.)
  • We will also reduce the AUSD cap for each pool so that no new positions can be created while AUSD is still off-peg.
  • The proposed adjustment value are shown in the table below:
Assets
Current Stability Fees
Proposed Stability Fees
USDT
2.0%
3.25%
BUSD
2.0%
3.25%
The Team will also have the ability to adjust the interest from time-to-time to maintain peg.
For the analysis, please refer to this spreadsheet: Stability Fees Analysis - Google Sheets​

Voting:

This proposal will be a simple YES or NO vote.
YES would start implementing the proposed fee adjustment above while NO would keep the interest model as is.

Resolution:

  • Community votes to adjust AUSD stability fee.

References: