This Proposal will serve to set out, identify and establish the stability fees on redemption of Maha collateral in the Protocol (Product - ArthLoan).
ArthLoan on BSC side have added Maha Troves (ability to provide Maha as collateral), along with this Redeem feature was enabled. This allowed a user to redeem collateral
( Maha in this case) by providing/burning Arth. The applicable fees for redemption are redemption fee ( variable based on time of last redeem with minimum of 0.5%) and the other being Stability Fees in Maha , which stands at 0% for Maha Redemption ( this fee can be decided through governance).
The purpose of redemption was to maintain Arth around the peg ( GMU) and the collateral is redeemed against open loans with the lowest CR ( however with a with a partial redemption , CR of a partially redeemed loan will improve and prevent a full redemption)
Read more about it here : Redemptions - ARTH Guidebook
It was was noted the the Redeem function was overused by users to an extent that many open loans were having their Maha redeemed against, this was for the dissatisfaction for many who were long on maha. Further it was very difficult to identify an optimal CR level to keep a users collateral safe from redemption. (even positions with CR over 200% had risk o being redeemed against).
The following factors are the reason for the dilemma:
- Low TVL on Arth Loan ( Hence a high portion of open positions are redeemed)
- Low liquidity in general and on Pancakeswap ( i.e buying 144 Maha has a slippage of 1%)
- The Oracle price feed of Maha is which is average tends to be lower than that of Pancakeswap (the only DEX on BSC)
- The redemption fee charged by protocol on avg is between 1%-1.5% and fixed value for each trade and buyers/redeemers are not impacted by slippage.
All these facets has been exacerbate by the fact the functioning of redeeming feature was unfamiliar by users , who were unhappy to have a high risk exposure on loosing their collateral and having to maintain a very high CR.
It was decided to discourage the usage of Redemption function on Maha positions , a proposed 5% stability fee (payable in Maha ) being charged for redeeming Maha collateral. This is currently available on BSC , however will be applicable on polygon chain once Maha Troves are added there. This is a temporary measure to be superseded by subsequent proposal on changes made to stability fee.
This proposal will calls for the following changes;
- Charging of 5% Stability on redeeming Maha collateral
- This rate will be also applicable when the Maha collateral redeem feature is made available on Polygon Chain.
It should be reiterated this is a governance given right and only probable solution to control unsustainable usage of the maha redeem function. Further the 5% stability fee was recommended by Steven. Please provide your opinion to discuses further on this and bring this matter for a governance vote.