Hubble’s Stability Fee will go online for the first time on June 13.
The Stability Fee will be set at 2%.
The Stability Fee for borrowing $USDH serves two purposes:
Here’s a crash course on Stability Fees:
The fee serves as a crucial mechanism in maintaining the USDH peg. When increased, it incentivizes users to acquire USDH from the market to repay their loans. By reducing the market’s USDH supply, the price of the stablecoin should rise to par with USD.
Concurrently, all collected fees from this raise in interest rates are routed to the Hubble Native Yield (HNY), rewarding those staking USDH in the Stability Vault. Users who deposit USDH in the Stability Vault will share the HNY collected as an additional source of yield on top of fees collected from minting USDH.
Raising rates on borrowing is a tried and true strategy for controlling market supply and affecting the price of an asset like collateralized debt position (CDP) stablecoins. Currently, USDH stands at $0.996, just shy of its $1.00 target, which demonstrates that rates should be raised to decrease USDH’s market supply. To find out more about Stability Fees, refer to the docs at: docs.hubbleprotocol.io/faq/usdh-peg-stability
This change won’t be immediate but will roll out over the next week. It will be subject to open community discussion and, of course, the real-time performance of USDH’s price. In the foreseeable future, control over this mechanism will be entirely in the hands of the HBB community.
Discussion on the introduction of a 2% Stability Fee is highly encouraged in this forum. All members of the Hubble community are invited to provide their input on the matter.
This is a chicken & egg problem.
What is Hubble for?
It’s to borrow USDH to be able to use it some place else i.e. to sell it! Which depresses the peg. (Bots arbitrage it back to equilibrium. $0.996 has been pretty consistent).
By raising the Stability Fee it deters borrowers and then HBB Stakers are not rewarded.
This isn’t about the peg, this is about the Stability Vault being empty. It’s about encouraging people to stake USDH.
Hubble is not the only lending platform so borrowers will shop around for the best (most reliable & consistent) deal.
So perhaps, rather than suddenly increasing the Fee to 2% we should, as was suggested in the Town Hall, increase in smaller steps.
From a borrower’s perspective, I’m not happy about being suddenly dumped on with a random fee increase. This goes against the idea of Decentralised Finance - as it’s random and very Centralised.
Perhaps the Fee increase needs to be mathematically decentralised by a mechanism based on the USDH staked in the Stability Vault relative to USDH lent (and the peg)
I expect- Easily said than done!
I still wish we could introduce SOL rewards to stakers because that is the blue chip of our ecosystem.
This is about the peg, nothing else. All fees from the borrowing vaults will go to the Stability Vault - you need to buy USDH to earn that yield.
What mathematical formula would you introduce to make the fee automatic?
Where is would the SOL rewards come from to reward stakers?
Equally, what % fee increase should we start with and what targets should we set for the next time we reevaluate the stability fee and peg stability?
The peg tolerance is about 0.1%… are we really worried about that? (It’s consistently under $1… average about $0.997)
So what will happen going forward?..
- Current borrowers will buy USDH to pay back but then new borrowers may accept the Stability Fee, borrow USDH to sell it and back down below peg we go
Marius, I’m a pilot, i can do three times table but that’s it!
Meanwhile, you’re the economic dev whizzkid. I’m just making a suggestion to DECENTRALISE the setting of the Stability Fee
0.5% fee for borrowing paid in SOL distributed to HBB Stakers.
Central Bankers deliberate over this and it takes a committee weeks to decide based on out of date data.
Surely we can come up with a better way with mathematical balancing? After all - you seem to think $0.996 is out of peg so perhaps that’s a starting parameter?
Indeed, the problem is not the formula, the problem is trusting and building a non manipulable $USDH oracle to know in the smart contracts what is the price of USDH. Something like a 1 week twap, but this creates even more problems.
Just to reiterate. We can start with a lower IR, such as 1% and see if the peg improves. We can check every 3 weeks (as this will have a delayed effect) and see if the peg improved and by how much.
For more context, the 0% interest rate was set post-FTX to encourage borrowing as there was a massive TVL loss. Currently 0% interest rate is good for borrowers, bad for liquidity providers because as people mint and sell to leverage they keep making the peg drop. The LP’ers suffer IL if the peg doesn’t restore. Borrowers need LP’ers to be able to repay when they want to close their loans.
0% interest rates cannot continue as they create the “duration mismatch” problem where borrowers, may never want to repay if it would be up to them, however someone has to brea the cost of the borrowing.
Yes, more complication equals more risk. I agree - but if we want to make Hubble Decentralised how do we do it? After all, governance by HBB stakers is still biased to those holding the most HBB… and I’m sure the regulators will have something to say Where as if it’s regulated by Smart Contracts the Regulator has no recourse.
Regarding encouraging borrowers to repay their loans … you said this was purely about the peg but now you’re saying it encourages Stability Vault providers, just as I previously suggested AND my point is, that new borrowers will come in (at least hopefully… but they might find a more competitive protocol:cry:) and once they borrow USDH they will sell it, once again depressing the peg, so what does Hubble do? Raise rates again
I think 1% is a good starting place but unfortunately my thoughts on this are not crystal clear.
It’s purely about the peg and raising the Stability Fees improves the peg by creating demand in 3 ways:
- encourages current borrowers to repay (so they buy USDH)
- increases the APY on the Stability pool which encourages borrowers to buy USDH
- discourages new borrowers so less USDH is minted and dumped (and less sell pressure)
Ok, we’re on the same page with 1%, we will submit the proposal and review this in 1 month