Adjust sDOLA Auction and DSA Parameters

Forum Post: https://forum.inverse.finance/t/adjust-sdola-auction-and-dsa-parameters/528

Background

sDOLA and the DSA were launched in February 2024 and have collectively returned over $168,000 to holders. Initially, sDOLA TVL growth was slow, taking nearly two months to reach $1M and another four months to achieve $2M. However, stronger PMF (Product-Market Fit) emerged in December 2024, with TVL surging from $1.7M on December 3rd to $8.05M as of today.

Objective

sDOLA has demonstrated strong PMF across three key avenues:

1. Yield Holders

   • sDOLA is now consistently the highest yield-bearing stablecoin. This has attracted an increasing number of wallets that hold sDOLA purely for its raw yield.

2. Curve Pools

   • Stableswap-ng pools handle sDOLA yield, fully returning it to liquidity providers. This makes sDOLA a compelling stablecoin for other issuers to pair with due to its constant yield. Current pairings include:
   • sDOLA/scrvUSD: ~$2.7M TVL
   • sDOLA/alUSD: ~$2.7M TVL

3. Lending Markets

   • sDOLA as collateral in lending markets allows users to leverage the spread between sDOLA yield and borrowing costs. It also enables leveraging DOLA during depegs for potential profits upon repegging. Key metrics:
   • Curve Lend: ~$3.05M sDOLA collateral with ~$2.63M crvUSD borrowed
   • FraxLend: ~$550K sDOLA collateral with ~$460K FRAX borrowed

sDOLA benefits the DAO by driving DOLA purchases from the open market. This creates equivalent lending capacity, which, when utilized, results in more DBR burn than DBR issuance spent.

Proposed Adjustments

1. DSA Parameters

Max DBR per DOLA per Year

• Current: 0.99
• Proposed: 0.95
• Rationale: Lowering the maximum DBR per DOLA per year increases the DAO margin, incentivizing further sDOLA scaling. Each DSA deposit would cost 0.95 DBR/year to generate an additional 1 DBR burn. If the debt is directed into a DOLA LP (e.g., leveraged DOLA LP on FiRM) rather than sold, the efficiency increases to approximately 2.5 DBR burn per 0.95 DBR spent. Read more in the prior proposal.

Max Yearly Reward Budget

• Current: 10M DBR/year
• Proposed: 30M DBR/year
• Rationale: Tripling the yearly reward budget ensures sDOLA has sufficient room to scale into emerging opportunities at the proposed max DBR rate, fully capitalizing on its potential.

2. sDOLA Auction

Objective:

The recent influx of sDOLA deposits presents an opportunity to deepen the auction while maintaining profitable arbitrage opportunities for participants. A deeper auction tightens the spread between the auction sell price and the DBR market price, reducing gas cost barriers and increasing sDOLA APY.

Recommended Actions:

1. Increase dbrReserve to ~300K DBR:

   • Gradually allocate ~252,240 DBR into the sDOLA contract over 7 days post-proposal approval. This staggered approach aligns with the K value ramp-up, ensuring arbitrage profitability remains stable.

2. Increase K Value:

   • Current: 3.25E+44
   • Proposed: 1.26E+46
   • Rationale: Deepening the auction balances sDOLA APY stability while ensuring the open market remains the primary venue for DBR trading. Excessive depth could cause prolonged revenue dips if DBR prices fall sharply, so maintaining moderation is crucial.

Yield Adjustment Overview

While reducing the max DBR per DOLA per year slightly decreases the DSA APR, sDOLA average yield is expected to rise due to the tighter auction spreads achieved through enhanced depth.

Conclusion

These adjustments ensure sDOLA continues scaling effectively while maximizing benefits for the DAO and its stakeholders. By refining key parameters and leveraging recent momentum, this proposal seeks to cement sDOLA position as a leading stablecoin in the ecosystem.

On Chain Actions

• setMaxRewardPerDolaMantissa to 0.95
• setMaxYearlyRewardBudget to 30m
• setTargetK to 1.26E+46