There must be a balance between interest paid by cdps and the redemption ratio to help determine peg. Of course pairing, market making and liquidity pools can also help peg.
But currently interest is determined by what % of the CDPs are close enough to the redemption ratio. Interest will be high because many of the large cdps are not close enough to the redemption ratio and their CDP is very healthy. Still we have to acknowledge that interest is still competitive enough to keep cdps worth the interest cost, assuming ADA does the thing and IUSD has enough utility and return in the defi world. So looks like things are tuning up nicely.
Its a consideration to balance and update interest not on what % of CDPs are in the redemption zone but instead on liquidity needs for IUSD. Not that interest should go down that much because things can really start breaking , iusd abused and also the dao shouldn’t be in the business of giving out free money.
But lets say there is enough volume of iusd under the redemption zone, that if the peg started to dip then the redemption bucket could be used to satisfy peg. This is different than using a % of CDPs, it adds the redeemable IUSD, compared to the buying power IUSD needs to reach peg in order to help determine the rest of the parameters.
If there is enough IUSD in the redeemable zone to satisfy the buying power needed to move the peg back up then interest rates could soften and even redemption ratio can be lowered.
This shouldn’t be the only determine factor for interest or redemption ratio but i think there is something to be said about how much volume of iusd is sitting in the redeemable zone and not getting redeemed. Redemption ratio can be lowered to invite more minting. Interest can be lowered to invite more minting and this would put sell pressure on iusd to get the redemption juices moving again. this would make it more efficient and accurate market so that the demand of IUSD and ADA closely and fluidly match with interest and redemption.
IUSD is not overpegged for very long to consider dovish changes on the redemption ratio or interest rate but the IUSD in the redemption bucket should be considered when setting a redemption ratio and interest rate. that volume could help atleast to soften a couple of % here or there back on interest and the redemption ration.
So if for example 800k iusd is in the redemption zone, and IUSD only need 600k of purchases to keep peg, then we can lower interest from 40 to 37 or 38. and move redemption ratio from 185 to 180 or 183.