The SPOT Protocol balances stability and volatility using enrichment and debasement mechanisms (the carrot and stick) through rollover fees. Specifically:
When Deviation Ratio (DR) < 1, the exchange rate between fresh and maturing tranches is below 1, gradually debasing perp collateral.
When DR > 1, the exchange rate exceeds 1, gradually enriching perp collateral.
Currently, these incentives (enrichment and debasement rates) are not strong enough:
When DR > 1, enrichment rates are too low to attract capital back into equilibrium.
When DR < 1, debasement rates are insufficient to reduce circulating supply effectively.
Current Configuration
The current rollover fees use a sigmoid curve, which determines the perp and vault funding rates (annualized, assuming there are 365/21 = 17.38 full rollovers yearly):
DR = 1.5: rollover fee ~19.02%, perp enrichment rate ~23%
DR = 0.75: rollover fee ~-7.76%, perp debasement rate ~-7.2%
Proposed Configuration
We propose adjusting the rollover fee parameters to increase the effectiveness of these mechanisms. The new configuration significantly increases debasement near under-collateralization (up to ~50%):
An additional issue to consider is the reduced effectiveness of debasement during periods of under-collateralization. Currently, only a portion of perp collateral is rolled over, which lowers the “actual” debasement rate. A future improvement could implement a direct value transfer mechanism. For example, perp could mint tokens directly to the vault to achieve a guaranteed debasement rate during unwinding periods.
Spot is a two sided system and it operates most efficiently and sustainable when it’s able to keep balance between these two sides. Doing this maintains flash swap liquidity, which enhances supply elasticity and leads to more trade volume for DEX LPs. A tighter balance also counteracts some disadvantageous procyclicality in the rotation vault multipliers, which leads to steadier performance for the stAMPL depositors.
It’s clear that the current configuration is not effective enough to have an impact on the market, so it’s not doing the job it’s designed for. There are of course some nice-to-have improvements we could make to the funding rate mechanism, like making the curve linear, decoupling the funding rate from the rotations, and better handling the undercollateralized case. But in the meantime, changing the existing config so that it actually has a chance to do its thing is a very important, and needed, step.
I support this proposal and recommend we aim to move to an onchain vote as is feasible.
I’ve regenerated the above charts and updated the proposed configuration to (-0.3, 0.03, 7). With the previous version, there was a minor issue with how the rates were annualized.
Given that we have 28 day bonds, and the oldest tranche in perp gets rolled out 7 days before maturity. On average it takes 21 days to rollover all the tranches in perp once. Which means, there are roughly 17 full rollovers every year.
Triggered an on-chain vote to transfer ownership of SPOT’s fee policy to the Kennal club multisig. The rollover fee parameters will be updated and ownership will be transferred back to the DAO timelock after monitoring the execution of subsequent rollovers.
Okay. Minor speed bump. Existing logic in SPOT’s fee policy places hard limits on the rollover fees. Currently the most they can be set to is ± 5%. But we intend to set it to (-30% and +3%).
So for now, we’ve scaled the proposed change down and set it to the highest value the smart contract permits.
parameter
proposed value
set value
lowerAsymptote
-0.3
-0.05
upperAsymptote
0.03
0.0163
growth
7
7
We will shortly propose to upgrade the implementation with a subsequent on-chain vote. This will then allow us to set the configuration originally proposed.
