There is the risk of BSD reflooding market quickly during expansion phase, due to redemption of Bonds.
As per https://docs.basisdollar.fi/ProtocolParameters, when: (1) There is expansion and NO system debt exists, then 100% of expansion is distributed to seignorage stakers. (2) There is expansion and system debt exists, then 35% of expansion is distributed to seignorage stakers and 65% of expansion is made available for redemption of bonds.
The existing 35% of expansion distributed to seignorage stakers also means that BSDS holders take some seignorage that would otherwise go to bondholders for redemption. This BSD printing received by seignorage stakers can also flood the market.
I propose the following concept: When there is an expansion and system debt exists, then:
(1) Assign 20% of the expansion for redemption of bonds.
(2) Assign 80% of the expansion is transferred to the DAO fund.
(3) Thus, 0% of expansion is distributed to seignorage stakers.
Once no more system debt exists (and there is expansion as BSD > $1), then assign 100% of expansion to seignorage stakers.
How it works (Mechanism):
Amend the following to: WDP above 1$ where amount of $BSD in Treasury contract < total Supply of $BSDB (Basis Dollar Bond) Expansion Distribution: Seigniorage Stakers: 0% Redeemable: 20% DAO: 80%
Advantages: (1) Reduces the extent of bond redemptions for BSD and then having those BSD re-circulated into market. This is the effect of shifting from 65% to 20%. (2) Strengthens the DAO. This helps build up DAO assets, thus strengthening the DAO as a stabilizer. The additional seignorage accumulating into the DAO means that the DAO also has more BSD to exchange into Bonds during contraction periods. (3) Removal of the 35% of seignorage that goes to seignorage stakers (even while system debt exists during an expansion period) reduces the impact of more BSD flooding the market. If it is held in the DAO, it strengthens the DAO (and can be sold in an orderly manner).
Disadvantages:
(1) There will be a gas war as bondholders will be incentivized to spend more gas to redeem bonds on first-come, first-serve basis. On the other hand, there was already going to be a gas war as only 65% of expansion (under existing system) is made available for redemption.
(2) There may be a disincentive to purchase bonds by investors (especially short-term investors) as there is a slower rate of bond redemption. Bondholders will tend to be long-term investors.