Establish an Economic Committee for Inter Protocol
(copied from original publication source Commonwealth originally published Aug 11, 2022)
Description & discussion
This discussion is regarding establishing an Economic Committee (EC) to ensure active monitoring of Inter Protocol by adjusting the governance parameters, evaluating new collateral types and responding to improvement process proposals.
Below is an initial set of discussion points, as a prelude to a community governance proposal establishing an Economic Committee. This document is being shared with the community for the purpose of opening discussion and inviting dialogue.
The Economic Committee’s goals are to reduce risk, grow usage and mitigate extreme events for Inter Protocol.
Inter Protocol has a number of governance parameters that may be adjusted to manage user incentives and support the stability of IST in the face of varying market conditions. In normal times, the Economic Committee will be charged with adjusting these parameters and providing ongoing guidance on how best to maintain the economic stability of IST. This includes reviewing proposals for new collateral types and protocol improvement proposals.
In times of stress or in the face of extreme volatility, Inter Protocol’s governance parameters may need to be adjusted very quickly, in less time than an on-chain vote can be accomplished. In those circumstances, the Economic Committee will be empowered to modify such parameters as necessary to address the event.
Governance Parameter Management
As described above, a core responsibility of the EC is to set and adjust governance parameters for Inter Protocol contracts. These parameters set limits on IST and affect user incentives which drive the stability of IST relative to its peg. Below are two examples of how the Economic Committee may need to act relative to these parameters.
Debt Limits
Inter Protocol currently includes four contracts which own the minting capability for IST: the Vaults, the Parity Stability Module(s), the Reserve, and BLD Boost. Each contract includes debt limits which limit the amount of IST which can be minted. Within vaults, debt limits exist per collateral type. These debt limits serve as the primary risk mitigation for Inter Protocol. The Economic Committee must manage these debt limits against many external factors such as Inter Protocol’s protocol controlled value (PCV), AMM pool liquidity available for liquidations, external market volatility, and collateral-specific factors.
Stability Fees
Vaults and BLD Boost charge stability fees to their users which drive behavior. Lower fees are likely to lead to IST supply expansion as debt is cheaper, while higher fees will drive IST supply contraction. As IST is a soft-pegged token, the EC should expect its value to fluctuate around the peg. In times of deviation, the EC must consider adjusting stability fees appropriately to drive IST back toward its peg.
Other parameters similarly drive IST stability, user incentives, and growth capabilities. As the Inter Protocol matures, the BLDer DAO may vote to add or remove contracts and governance parameters. The EC must be prepared to understand the implications of these changes and act accordingly to both grow and safeguard Inter Protocol.
Reliance Set Monitoring
Inter Protocol relies on proper functioning of systems that reside outside of the protocol and BLDer DAO’s direct control. These systems include oracle price feeds, IBC relayers, external blockchain security, and external automated market maker liquidity.
The EC will be responsible for monitoring the health of these systems using existing or new tools and to react in extreme scenarios.
Economic Committee Operations
This post is the first step to outlining the full EC operational scope. An Economic Committee Charter will be developed, with community input, that outlines the basic structure to get started with. Updates and changes will be made as the process matures.
FAQ
Q: What is Inter protocol?
A: Inter Protocol is a DeFi protocol and over-collateralized stable token (IST) in the Cosmos ecosystem and running on the Agoric chain.
More information about Inter Protocol is available via the Inter Protocol White Paper.
More information about the Agoric chain is available via the Agoric White Paper.
Q: Who owns Inter Protocol?
A: Inter Protocol is a decentralized community.
Inter Protocol is not owned or managed by any one company. It is by and for the DeFi community and has participation from various members, such as Agoric, Decentralized Cooperation Foundation, Iqlusion, and academics from RMIT University and George Mason University.
Q: Why is Inter Protocol governance separate from the BLDer DAO?
A: Inter Protocol operates on the Agoric chain and chain level governance is voted on by the holders of Agoric BLD tokens (the BLDer DAO). These governance proposals take time to prepare, discuss and execute, so there is a proposal to elect a distributed Economic Committee (EC) to oversee the day-to-day management of Inter Protocol. There are many governance parameters built into Inter Protocol and the Economic Committee will have the ability to update them to optimize Inter Protocol.
Q: Is the EC part of, or a representative of, the Decentralized Cooperation Foundation (DCF)?
A: No, the upcoming proposal is for the EC to be elected directly by the BLDer DAO.
Q: What parameters will the EC be responsible for?
A: Inter Protocol’s parameters span multiple contracts. These include but are not limited to:
- Vaults : Liquidation penalty, Debt limit, Liquidation ratio, Stability fee
- AMM : Protocol fee, Trading fee,
- BLD Boost: Debt limit, Lending limit, Stability fee,
- PSM : Debt limit, IST-in Swap fee, IST-out Swap fee
Q: Who will be in the EC?
A: The EC should be made up of people, not organizations. EC members should:
- Be diverse in demographics including location, gender, nationality, etc
- Have a deep economic understanding of currency and stable tokens
- Be experienced in blockchain and DeFi
- Be available and capable of making important strategic decisions
EC member archetypes should include experience with:
- Public policy and regulation
- Business opportunities within the Cosmos and IBC-connected ecosystem
- Financial risk management
- Decentralized finance, particularly around stable tokens, borrowing and lending platforms, and liquidity management
- Traditional (‘centralized’) finance and institutional markets
Q: Are all the EC members going to be in the United States?
A: No, a geographically diverse and timezone dispersed EC is the goal.
Q: How long is membership?
A: The expectation is to have yearly elections via the BLDer DAO governance proposal
process.
Q: How is the EC funded?
A: This proposal authorizes the Agoric Community Fund to fund the EC. The EC is responsible for providing justification to the Community Fund to receive funds and the Community Fund is not obligated to fund every proposed expense of the EC.
Q: What is the next step?
A: This post begins the discussion with the BLDer DAO community. The next step is for the community to create a governance proposal that would establish the EC, if approved by the BLDer DAO. After the EC is established another vote will be needed to vote in the EC members, after a discussion period.
Comment Period
This discussion is being posted for comment and feedback from the community. We will leave this open for 10 days for community engagement.
Comments
(Note these are the comments from the original thread on Commonwealth)
-
Tayo|01node 9/16/2022
Thanks for posing this. I think the economic committee is also needed. -
Ric Shreves 9/15/2022
I believe all have agreed to serve. I think the compensation terms are still TBD, and some of the other housekeeping/administrative matters are still TBD. That should be first order of business for the EC. -
alchemydc 9/13/2022
The folks named to the initial EC appear to have a collectively strong background that is appropriate for the task at hand.
Have all of the people named agreed to serve on the EC? What sort of compensation will they receive in return for this service?
The proposal mentions that the EC will be funded from the Agoric Community Fund. What level of funding is appropriate?
Finally, to @dckc | Agoric 's comments above, if the parameter changes are made within the js VM, how are they authorized? I’m fairly ignorant as to how the js VM works (haven’t played with it since early testnet), but is a redeploy required in order to update these IST stability parameters? -
dckc | Agoric 9/16/2022
They’re authorized using capability security
No, a redeploy is not required.
Each governed contract is launched by a contract governor contract that holds the creator facet of the governed contract. One of the parameters when the contract is launched (e.g. in startPSM) is the electorate; in the case of the Inter Protocol, this electorate is the Economic Committee; each of the members receives an invitation to participate in the committee contract by casting votes.
The PSM contract has variables for its governed parameters: minting limit and fees. Inspection of the contract will show that these variables are only changed via the creator facet, held by the contract governor.
The committee contract has a question poser facet capability; this facet is held by a psmCharter contract, and each committee member gets an invitation to this charter contract, which lets them pose questions.
when a question is posed, the committee starts a vote counter contract; when that counter contract shows that the question carried, the contract governor uses the creator facet of the governed (PSM) contract to carry out the decision.
Simple, right?
Here’s hoping we manage to put together some diagrams.
Maybe come to office hours to talk about it some time? -
chris / chainflow 9/13/2022
In reviewing this to decide how to vote for Proposal 15, a couple key questions come to mind -
1 - What is the full list of parameters the EC will be responsible for?
2 - How will the parameter changes be implemented on-chain? What support from validators will be required, if any? -
dckc | Agoric 9/13/2022
Excellent questions.
- inter-protocol/docs/governance-params.md is the full list (subject to change until the contracts are deployed)
- These parameter changes are carried out within the JavaScript VM; other than keeping that running, no validator support is necessary. (For more detail, see packages/governance .)
-
dckc | Agoric 9/16/2022
No, proposal 15 is only electing the committee.
Proposals to start the VM and deploy contracts are to follow separately. -
chris / chainflow 9/15/2022
Thanks for the reply. Where will the final contacts be published? Are these the contracts that validators are voting to deploy as part of Prop 15?
I have the same question as @alchemydc below about the parameter change authorization. -
Tayo|01nodef 8/12/2022
The Economic committee sounds more or less like a central bank to me. Happy to see what the community thinks of the proposal -
Rowland | Agoric 8/12/2022
Note that the EC has no authority to unilaterally mint IST.
They are in charge of managing protocol parameters, which must be done by someone (algorithmically isn’t really an option when you need to consider factors you may not know ahead of time).
Token-weighted voting is not well suited for this kind of management as it would drive governance fatigue and force BLD holders into a role they didn’t necessarily plan for. A goal of the EC is to have a specific accountable body qualified to make decisions. If BLD holders don’t approve of the job the EC is doing, they can fire the EC! -
Ric Shreves 8/11/2022
Thanks for posting this, Chris. The DCF definitely supports this idea.
The Economic Committee is a critical component for the integrity of the Inter Protocol. DCF will be happy to support the efforts of the EC - in line with the community’s wishes. We view this as a classic example of how a foundation can assist with the support of public goods.
As for the methodology and parameters you outline above, it strikes me as well thought out and on point. Of course, the membership is key, but I realize that is the next step – once we get consensus on the formation and the scope we can turn attention to the composition of the EC.