Proposed by: @Akan and @WasabiBoatResearch
Objective: Improve price stability for DIGG by pausing negative rebasing
TLDR: Many users are frustrated by DIGG’s negative rebases and they have not helped DIGG achieve peg. Turning off negative rebases would require minimal development work so is worth trying as an experiment.
DIGG is an audacious and experimental product tackling one of the hardest problems in DeFi: how an uncollateralized asset can achieve stability against a price target (hereafter “peg”).
While its ancestor AMPL targets a fixed price level, DIGG’s job is even harder because it seeks to track the price of BTC, a highly volatile asset.
Given the difficulty of the problem, rapid experimentation and iteration is needed to ensure that DIGG can grow and find a niche within DeFi.
In the 10 months since DIGG’s launch, it has spent most of its life under peg, leading the Badger and DIGG communities to explore the next step in its development.
Several ambitious plans are under discussion in the DIGG and Badger communities that would change the mechanism of DIGG. Most of these, however, require extensive dev work which would entail Badger diverting time and resources from other projects.
This DIP proposes one item of “low hanging fruit” that would:
Eliminate the most common user frustration with DIGG; and be
Very easy to implement (requiring almost no dev time)
The combination of these two qualities makes turning off negative rebasing an ideal candidate for testing the next iteration of DIGG.
Low Level Details
Every day at 4pm EST DIGG expands supply if DIGG trades at >105% of peg and contracts if it is <95%. Full description of the mechanism here.
This process is controlled by an off-chain bot. Changing a few lines of this code would eliminate the negative rebase while keeping the positive rebase intact. We hypothesize that this change would alter the mechanism of DIGG in the following ways:
If Below Peg: Removing negative rebases would ease the pain of users seeing their balance contract even more, which leads to a negative feedback loop. The mechanism for pushing DIGG to return to peg would be the same: the anticipation of positive supply expansion with DIGG above peg.
If Above Peg: Users (or potentially the stability vault strategy) would harvest BTC by selling DIGG for WBTC, pushing the price back down towards peg. This would counteract the expansionary pressure caused by buyers seeking to benefit from further positive rebases.
Business and Technical Requirements
A communications effort from the Bager / DIGG communities would be required to educate users and build support (~1 week of comms time)
It is not anticipated that this change would affect the composable form of DIGG (bDIGG) so there is no need to alter partner smart contracts
Is it anticipated that minimal dev work (½ day estimate) is required to implement the pausing of the negative rebase.
- Yes, Pause Negative Rebases
- No, I Like Negative Rebases