The Alchemix protocol is rapidly approaching the 50m alUSD debt ceiling. In order to raise this, the governance multisig has initiated a transaction to raise the cap to 100m. However, the decision whether to execute this transaction and the timing of it is something worth discussing and debating.
Pros for raising the cap:
- Allows more people to mint alUSD
- Increases protocol TVL
- Allows alUSD to meet market demand, preventing a premium for alUSD from forming
Cons for raising the cap:
- The yearn yvDAI vault has a current cap of 100m (which is being raised soon to meet this demand). Flushing of deposited DAI to yearn would not be allowed in the meantime, leaving DAI to sit idle not earning yield.
- With less DAI earning yield, less debt would be paid down and sent to the transmuter.
- The Alchemix protocol is very young and experimental, and more TVL means more potential risk for users of the platform.
- If too much alUSD gets minted before the official AMM pool is live, then alUSD might experience an increased degree of volatility as it tries to find it's market determined price.
The team's thoughts on this matter are that we should wait to raise the cap until the following conditions are met:
- yearn increases the cap for the yvDAI vault
- the AMM pool is live and yield farming has been turned on for it
In the interest of not becoming victims of our own success - taking a more conservative approach now will safeguard the future prospects of the Alchemix protocol.