The Only Way to salvage Defrost

Rationale

Fundamentally, when a stablecoin like H2O depegs, there are two ways to make it onpeg: (1) reducing supply of the H2O; or (2) increase supply of other stables in the trading pool to balance against H2O.

Given the situation of Defrost, we cannot reduce too much H2O because that could make collateral drop too much and expose us to the bad debt of UST. So we need to do it the other way. I suggest:

  1. Create a pool on the Defrost UI that only takes 3crv then deposits it into curve on behalf of the depositor, let’s call it the “3crv salvage pool”. This will increase supply of 3crv and balance the pool.

  2. Stop minting h20 until peg is achieved so that people cant game the system by using h20 to buy 3crv. This will freeze supply of H2O and make it easier to achieve point 1 above.

Notes:

  • The market is not getting any better so we should not expect there would be new liquidity out of no where in the near future. The only ammo on our hand is the protocol income and the TVL, so we need to use them wisely. Giving these for free to the loopers are the dumbest thing we can do now. We must realize that every cent being given away is one cent less for saving the project. This has to stop now. We need to stop rewards to any other pool, and move ALL of them to the 3crv incentive to save the peg. This includes the current h2o crv pool and the PTP pool.

  • Since the PTP pool is experimental and take price feed from curve pool, we should focus only on balancing the curve pool, we need to stop the PTP pool rewards as well.

  • Ultimately, the UST bad debt is around 1mil against ~14 mil TVL currently, this is rescuable within one year with APY at around 7%, which is achievable.

  • Some of the rewards can be allocated back to the other pools after H2O is on-peg, but learning from the current failure, the salvage pool should be kept as a permanent measure to enhance the security of H2O.

Proposals

  1. Stop ALL rewards to DefrostH2O3CRV-f pool and allocate them to the salvage pool.

  2. Stop ALL rewards to H2O saving pool and allocate them to the salvage pool.

  3. Stop ALL rewards to PTP pool and allocate them to the salvage pool.

  4. Stop minting of new H2O until it repegs.

1 Like

Seconded on the 3crv and h20 aspects. This is a no brainer, easy fix. Im in favor of leaving ptp as it is.

Thanks… These rewards can be adjusted dynamically depending on the situation. We can even vote on a mechanism to dynamically adjust the rewards ratio. I just want to stress that saving the peg is and should be the priority currently.