Interest covers IUSD Insurance. Sell Put Option for CDP Owners

Temp Check Discussion
1

Interest paid on CDPs can be used to help the peg. 20-30% is a sizable portion of the debt and can provide incentives for the CDP owner to make a promise.

The promise of the CDP owner would be that they have to pay off their debt at a certain price if IUSD starts to depeg.

Bob is a CDP owner and has 100 IUSD in debt. Bob is willing to pay off his debt and burn his IUSD for a price. The interest that Bob pays will be 20-30 iusd per year. Once Bob gets up to 10 or 15 IUSD in interest paid he can qualify to make this deal.

Bob wants some of that interest he paid back and doesnt mind getting out of his CDP at a certain % gain. Hes willing to pay his debt back at some point anyway, he doesnt plan on selling IUSD for good.

The solution is for Bob to accept 10 IUSD back from the interest that he has paid. In order for Bob to receive the 10 IUSD he would need to sign a contract that he must burn his 100 IUSD if the peg hit .90.

Bob is basically selling a put option in his IUSD debt. hes getting paid to have a limit order to burn 100 IUSD at .90 in exchange for the 10 IUSD.

If IUSD does not hit .90 then Bob hangs on to his 100 IUSD in debt and the 10 IUSD he received from the sum of interest he was paying.

This means there will be a massive burn if the IUSD starts to depeg past .90, or whatever level we set it to be. Causing a ton of burn would help the peg to get back up.

Bob is getting a nice return and is basically willing to hold iusd for longer so he can get up to the 10-15 iusd in interest paid returned to him.

Bob is also helping to keep a hard peg and assure he will be buying his IUSD back at some point.

This also provides a huge incentive for all CDP owners to help to keep the peg healthy, because a healthy peg, above .90 in this example would mean everyone keeps their 100 iusd debt and also get to keep that extra 10 iusd that they are getting back in interest, and can continue to get this incentive in the future when they have paid enough interest again.

the interest would be returned by a certain time. perhaps they can accumulate a return and receive it once their iusd gets burned. or get the 10 iusd upfront when they sign the initial contract to promise to burn at the specific depeg strike price, ie .90.

2 Likes
2

I cant think of a reason why Bob should be eligible to have his cdp redeemed. Hes already signing a contract to redeem 100 iusd worth of ada from his collateral to cover his debt, or at the time of the call, pay off the iusd burn with 100 iusd if there is a .90 depeg on iusd…

3

this can start sooner than later. there is plenty of interest already paid by each cdp owner

if someone has paid at least10 iusd in interest and have at least 100 iusd in debt then they can start this.

the person would collect the 10 iusd for every 100 iusd in debt

IE
CDP has 100,000 ADA, 10,000 iusd in debt and has already paid 100 iusd in interest. this CDP owner could collect the 100 iusd back from the interest paid but would need to make the promise to burn 1000 iusd. each CDP owner would get 10 iusd for every 100 iusd obligation to burn.

there really does not need to be a large sum of interest paid in the system to get this going, only 10 iusd for every 100 iusd in debt, and most CDPs have 1000s of iusd in interest, so they could be writing hundreds, if not thousands of contracts(promises to burn at .90)

1 Like
4

another way to fund this would be to collect the interest from the rest of the iasset paid by all cdp owners and anyone could write these contracts to burn 100 iusd for every 10 iusd returned from the interest bucket in the system. this way , even the non cdp owners can participate in these contracts. they would just need 100 iusd.

1 Like
5

Similarly if there is an overpeg someone could be willing to burn their iusd at par. 1$ for a premium of .10 iusd as incentive if iusd price was trading at 1.10
This would help to keep the peg balanced and provide incentives for cdp users to burn for a return

6

I find this interesting but feel like it kind of complicates the CDP process.
Why not just have an options market for the synthetic assets?

1 Like
7

yes that would help. but there currently isnt one. perhaps strike finance can spin one up

but this would also help cdp owners in a sense that it would create a limit type order for a cdp. currently users are needing to manually go in an burn. this option would give them the ability to make sure their cdp is covered without the need to be there every day