I’ve read all the posts about looping and premiums being out of control.
I think it might be appropriate to consider delisting aUST as a collateral option.
If aUST can’t be used as collateral, it completely changes to game theory of the “looping strategy”.
Correct me if i am wrong, but my understanding is that looping is done on the basis that the expected return on the looped aUST will be greater than any loss made because I borrowed/sold a mAsset at discount.
Delisting aUST would impact the protocol’s TVL but should help realign incentives when using it. I think a lower TVL with a working protocol is better than a bigger TVL with a broken protocol.
There seems to be a lot of worry that premiums are ‘out of control’. Are they really?
As per my other post, there is a natural arbitrage which limits how far premiums/discounts can widen before there is free profit in closing them, and we are near that point currently. Yes the tracking error is greater than before but this is no reason to panic.
The primary value of Mirror is in allowing aUST as collateral otherwise users would just use tradfi to trade shares instead for better liquidity.
So yeah, it appears that delisting aUST as collateral would help only for mAssets privileged for looping such as mKO while potentially increasing the risk of higher/sustained high premiums or other mAssets.
In theory what could have been done is to have a “dynamic” list of accepted collateral that depends on premium at the time a short/borrow position is opened. For example, if premium is <0%, then aUST is not available as collateral to open a new short/borrow position and if premium is >0% then it is available. That would have been a good solution to resolve negative premiums while not increasing the problematic of already high premium mAssets.
That being said, my understanding is that collateral options cannot be managers on a dynamic basis atm nor could we just deactivate aUST for specific mAssets (such as mKO) in a non-dynamic manner.
I’m generally in favor of taking strong steps to improve the Mirror protocol but I vote NO.
This is however a relatively bad idea in my opinion, and this for the following reasons:
Your idea here would help bring premiums on mKO and mSPY back towards 0%. While this outcome is desirable, it can be achieved in other/better ways.
aUST as collateral is a unique value proposition of the Mirror protocol and in my opinion one of the reasons why it’s a cornerstone of the Terra ecosystem. Removing it would make it LESS APPEALING to short farm tokens as it will mean foregoing the 20% interest rate from Anchor.
The major issue currently is that premiums on most mAssets (except the 2 with 130% MCR and mVIXY) are too high, not too low.