Suggested parameters:
Stablecoin:
ReactivityConstant: 2e-5 C-factor: 0 L-factor: 1 R1: 0,04 R2: 0,2 R3: 0.75 Target Util: 0,8 Max Util: 1
XLM:
C-factor: 0,89 t L-factor: 0 R1/2/3 and ReactivityConstant same as stablecoin Target Util/Max util 0
Main concerns: Is the reactivityConstant quick enough with arbitrage bots active? Can the protocol function with an R3 value this high?
C-factor & L-factor: these have to be chosen such that they offer some sort of protection against price changes. At the same time we want to be attractive for leverage trading, which means that we want a competitive leverage factor. I have derived the following formula for the leverage factor:
With C being the worth of collateral needed to borrow one ousd. So the C in the formula is actually 1/(c-factor*l-factor). If we only allow ousd to be borrowed with XLM and not the other way around, I would propose to set the L-factor to 1.
In that case, using the formula, we would get a max leverage factor of x2 with c-factor 1/2, x3 with c-factor 2/3 and x5 with c-factor 4/5.
When we look at curveUSD we see that they allow people to trade with up to x9 leverage. Filling this in in the formula tells us that that means asking 1.125 collateral for 1 stablecoin, which would give us L-factor=1 and C-factor=0,89.
Suppose we set the c-factor to 0,89, the following max positions give the following max leverage factors:
| Max positions | Max leverage factor |
|---|---|
| 5 | 4,02 |
| 7 | 5,01 |
| 9 | 5,89 |
| 11 | 6,55 |
However, the MakerDAO protocol makes use of a collateralization ratio of 150%, with a max leverage factor of 3. This is because MakerDAO is more focussed on being an unbiased currency and decentralized stablecoin and not so much a trading tool. So I guess the collateral factor is dependent on what we want to be.
R1,2,3: Like we say in the whitepaper, the interest rates are to be determined by the following formula’s (with RM between[0.1,100]):
For the peg keeper it’s important that approximately as many people want to exchange usdc for ousd as the other way around. For people to have incentive to exchange usdc for ousd, the interest on ousd should preferably be higher than the usd interest rate.