TL;DR
This is a proposal to give the core team’s Safe limited control over three essential aspects of the Silo protocol on Ethereum Mainnet:
- Listing new markets
- Updating interest rate curves
- Changing collateral factors
Introduction
With the introduction of Silo Finance Arbitrum, the community can see the benefits of having a governance-minimized process, resulting in faster iterations on essential aspects of the protocol such as shipping markets quickly, replacing inaccurate oracles, and more. On Mainnet, however, we are blocked by our rigid governance process, which requires at least 5 days for every change to take effect.
The core team is currently hard at work on SiloV2, and with its release, we aim to create a governance-minimized process. However, to remain competitive in the near term, we’d like to transfer control over some functions to the core team’s Safe - similar to the way we manage Silo Finance Arbitrum.
Rationale
Faster go-to-market
I will illustrate the point with an example:
$PEPE is a hot token, many versions have sprung out of nowhere. Introducing a new market takes 5 days. That is too slow. But even if we manage to launch the market fast, an oracle’s state can change from secure to insecure overnight, which is especially the case for meme cryptos.
Being able to ship the market and change its settings is crucial to go to market fast while ensuring the safety and security of Silo protocol and Silo users.
Better management of Interest Rates
Our isolated lending markets use different interest rate curves. Interest Rate (IR) is a lever we can pull to encourage deposits and borrows.
Below I illustrate why it is crucial to iterate on interest rates fast.
Example 1
We use Interest Rate configs for rETH, cbETH, wstETH that produce low APRs for base depositors. Low APRs discourage deposits of such assets. We can tune up configs that would produce higher APRs in the optimal utilization region.
Notice in the chart below, rates are extremely low in the optimal utilization region (around 70%).
Example 2
We use Interest Rate configs for ETH that set competitive APRs for optimal utilization points, however, the model’s optimal point is 70%. In certain circumstances, we may want to increase ETH optimal utilization to 80% to encourage more ETH deposits and borrows.
Better risk management
Risk management is often time-sensitive. Below I list examples of situations where we need to intervene fast:
Example 1
Disable XAI in market(s). This is something we have discussed actively. The standing proposal is that we disable XAI progressively, starting with markets with large credit lines. While the proposal will be executed in phases, we might face a situation where we need to disable XAI collateral in a given market faster than planned.
Example 2
Changing collateral factor is another area we need to act fast on. For example, liquidity for a certain token asset can drop significantly, in turn making it impossible to liquidate large positions. We can reduce the asset’s maxLTV/LT to mitigate the risk of bad debt.
Example 3
We can change interest rates to maintain a balanced liquidity in the XAI/FRAXBP pool. In extreme cases where XAI is greatly de-pegged, we can increase APRs to encourage repays.
Example 4
In adverse market conditions when crypto experiences DEX illiquidity, we might need to quickly increase borrow APRs to encourage loan repays.
Summary of roles
| Function | Core team | SiloDAO |
|---|---|---|
| Mint SILO | No | Yes |
| Mint XAI | No | Yes |
| Change maxLTV/LT | Yes | No |
| Change Interest Rate settings | Yes | No |
| Disable markets | Yes | No |
| Custody user funds | Not possible by any admin | Not possible by any admin |
| Upgrade protocol | Not possible by any admin | Not possible by any admin |
Conclusion
We need to strike a good balance between decentralization and better management of our markets. Silo Arbitrum has provided us with a governance template to implement for Silo Mainnet where we can act quickly while persevering the integrity of our markets and ensuring the safety of Silo and it’s users. This is being done to keep momentum going for V2 which will bring a much more efficient model, being as governance-minimized as possible.
Next steps
Introduce an executive governance proposal (Tally) to give the team Manager roles.
If the proposal is passed, the core team will be using the following Safe:
0xE8e8041cB5E3158A0829A19E014CA1cf91098554
Signers: (3/5)
Aiham: 0x1fF60e85852Ac73cd05B69A8B6641fc24A3FC011
Yoshua (Tenzent): 0x236C4D2B6626FbA4bD4bbDc3428F013b63d88180
Edd: 0x66B416a3114A737f0353DC74d1E12a7e23f686F9
Siros: 0xe153437bC974cfE3E06C21c08AeBbf30abaefa2E
Neo: 0x22FF5BCE89fe7b6e78262893a535972163332C8b
The Safe has not had any interaction with any smart contract on Ethereum.
For all wallets and addresses in use, check out this Silopedia post.