Chaos Labs fully supports the introduction of the GHO Stability Module. We believe that incorporating a stability module or similar mechanics is crucial to ensure the stability of decentralized stablecoins, especially considering the current state of the crypto markets. Drawing from the analysis of Maker PSM’s historical behavior, we must avoid the significant pitfalls that arose from excessive reliance on USDC.
Regarding the specific innovations proposed:
Price Strategies: We consider enabling dynamic strategies to be vital for addressing unforeseen events and providing effective mitigation. However, it is essential to define these strategies carefully. Initially, we recommend implementing a fixed price strategy, as suggested, since it can be deployed quickly and should suffice while the PSM is still relatively small.
Debt Ceiling: We view the debt ceiling as a potent tool for mitigating the adverse effects of over-reliance on centralized stablecoins. Building on the approach proposed by @sogipec, it is important to set the ceilings in a relative manner. However, we differ in our opinion on the approach itself. Instead of setting debt ceilings relative to each other, we believe they should be relative to the circulating supply of GHO. Furthermore, we advocate for the inclusion of a hard cap as originally proposed.
In the event of a depeg event, users can supply the depegged asset and mint GHO, similar to what occurred with DAI during the USDC depegging. With responsible debt ceiling settings and secondary market liquidity, withdrawing other stablecoins from the PSM becomes a secondary consideration for the protocol. The primary mitigation for such scenarios should be employing dynamic price strategies.
Daily Limits: In addition to the debt ceiling, we believe that imposing limits on the velocity of stablecoin influx is an effective risk mitigation measure. This was observed during the USDC depeg incident in the DAI PSM, where Maker DAO limited the daily amount of USDC that could be deposited into the PSM. Therefore, we recommend considering the implementation of such a mechanism for the GHO Stability Module that will limit the total amount of GHO that can be minted daily by the PSM.
Control over Last Resort Liquidations, Price Bounds, and Swap Freezes: We strongly advocate for the development of a contract that can control Price Bounds and Swap Freezes based on external asset prices. Such a contract would significantly improve response time during crisis situations. We emphasize the importance of the logic within the external contract and suggest further exploration and auditing before finalizing it. While we agree that swap freezes and price bounds should be governed by a smart contract, we believe that Last Resort Liquidations are better suited for explicit DAO votes, allowing decisions and mitigation to be made based on the specific circumstances at hand.