TLDR: policy grants the Treasury discretionary authority to either top-up collateral and/or reduce debt as needed to maintain a >=175% collateralization ratio for the Treasury’s CDP with the main goal of avoiding liquidations
Background
Treasury’s CDP last interaction was four months ago, following a positive vote on TCD#50, where the Treasury seeded the Uniswap v3 pool by opening a CDP with ~710 stETH and pairing the minted eBTC with WBTC.
Since mid-June, the stETH/BTC ratio has been declining, which has weakened the health of the Treasury’s CDP to an undesirable level (~153% at the time of writing). This poses a risk of liquidation if a sudden market movement further worsens the stETH/BTC ratio and potentially brings the whole system into recovery mode (TCR < 125%).
Proposal
As a part of an action plan to improve the collateral ratio, if it falls 20% below the target of >=175%, the Treasury is authorize to, at its discretion, take either or both of the following actions:
- Top-up with more collateral (stETH)
- Reduce the debt (eBTC)
Regardless of the selected option or combination, the primary objective of this policy is to enhance the overall health of the CDP and avoid liquidation risks, which remains the core mandate.
In addition, to minimize the need of swapping naked ETH assets into collateral (stETH) when the Treasury needs to act, this TCD passing will enable the Treasury to convert all naked ETH into stETH, except for 10 ETH, which will remain to cover gas expenses. This swap also will capture the yield staking rate for the treasury, instead of having those assets undeployed.
Metrics of Success
How long will the investment thesis take to play out?
Not an investment
Will the treasury recoup funds or does the investment represent an outlay?
Yes, collateral can always be withdrawn, unless liquidated.
What are the risks associated with each investment?
Not an investment. However, the primary risk associated with this policy is the potential mismanagement of the collateralization ratio, which could lead to liquidation.
