lost peg scenarios

[earonesty]

what stops this?

• alice deposits $2 mil in btc (current price)
• alice borrow $1 mil in dollars (short bitcoin)
• we mint when alice borrows
• alice uses that to trade, bob has $1 mil synth
• btc price drops by 75%
• alice loan gets recalled (give back the synth)
• alice says "no", she doesn't have the $$, she gave it to bob
• bob wants $1 mil in dollars (sell synth for bitcoin)
• but he can't get it.... the peg has dropped by 50%

are we just assuming all "alices" will not operate in sync because of macro events, but instead will operate independently?

we should have a long discussion of exactly how a peg can be lost, and what the scenarios are that could lead to a lost peg, and what the rational response should be to a lost peg

[tiero]

Thank you for opening the issue!

There are many events that can stress the peg, I think it's great to all have to go through them as much as possible.

are we just assuming all "alices" will not operate in sync

This is def. to be kept into account

bob wants $1 mil in dollars (sell synth for bitcoin)

As Bob it's holding the synths and does not have exposure to the appreciation of bitcoin value, I do think it's rational for Bob to use the synths as inventory for the liquidation of under-water Safes.

Future extensions such as the FIP-05 will allow anybody to be a liquidator (as of today still need to be specified) as long you supply collateral liquidity, being de-facto short bitcoin.
This liquidity it's needed to support the selling demand of the synths from minters, but compensated via the recurring minting fee (acting as interest rate).

but he can't get it.... the peg has dropped by 50%

I actually think the opposite: in a scenario where 100% of Safes are underwater, and the Hunter, the liquidator pool, is empty where there is no synth available to cover the liquidations, the demand for that increases, creating an arbitrage opportunity to mint at $1 to receive more than $1 in bitcoin if is sold on the market. The minimum collateral ratio creates a natural "price ceil" on the way up.