thetechnocratic
When the price of alUSD drops, the Transmuter is looked to as a way to restore that peg. Users purchase and borrow alUSD to exchange it to DAI 1:1. By diluting the lending interest rate, we are reducing this upward pressure on the price of alUSD, thus destabilizing the peg. Having interest paid to the treasury does nothing to help the peg, since the treasury does not sit within the Alchemist-Transmuter loop.
Hard disagree with this. Since all borrowed alUSD has to be paid back with interest it will actually relieve pressure off the market and the transmuter in the long run.
WRT to the point of it being in the lending market and thus "in circulation", who exactly are we diluting in lending markets when there is effectively no lending market for alUSD at the moment? If more people pile into it, then we can withdraw our alUSD and burn it.
Again, I think scale is the key here. If this is modest in size, max 5m, that is 1/60 of the supply of alUSD, and with the depth of our curve market, it won't affect the peg, full stop.