DIP-2 Create Protocol Risk Management Task Force

TL;DR DOP emission incentives are misaligned and not effective. Active emissions and risk management is needed without having to go through governance overhead. Protocol risk management task force needs to be created - Dope Wizards. Wizards can actively implement changes related to emissions and protocol risk without having to pass Snapshot vote. Community can veto and revert changes at any time.

Issue Token incentives are misaligned, don’t lead to additional borrowing and protocol use nor they help to achieve better protocol decentralisation. DOP incentivized APYs were important at the inception of the protocol to attract first lenders and borrowers.

Current DOP rewards system is not efficient because of disproportionate incentives for users that exceed protocol fees and stakeholder benefits.

Objective In order to prevent an extractive economy and position Drops for long term growth we need to rethink the incentives program. Incentives need to scale growth while preserving token value.

Proposal Instead of having a fixed emissions amount per pool, it would be more efficient to target APRs while maintaining a 10% inflation cap. It means depending on the demand, inflation can be lower but not higher.

For lenders DOP incentives should target the base interest rate APR of the pool with enough room to attract future lenders.

For borrowers DOP subsidies should not exceed the interest rate paid by the borrower and target base rate of the pool.

Minimal subsidy should be just enough to compensate for protocol fee which currently stands at 15%.

By introducing these changes it will be possible to prevent yield farming with NFTs and maintain incentives for lenders where majority of interest gets paid in native token.

Since implementation of the above principles is still obscure and can be decided with full certainty in an algorithmic manner, we would like to form a new task force - Dope Wizards.

Scope:

Dope Wizards - Protocol risk task force Dope Wizards will be responsible for protocol risk parameters tracking APRs and making adjustments to emissions so they are represented properly.

In order to facilitate speed of decision making, Wizards will be able to upgrade DOP emissions and upgrade risk parameters without the need to pass governance votes through Snapshot.

All upgrades are public and can receive feedback before taking place. However that does not enable free rule since community members can Veto proposals at any time.

How would it work? Proposal is created by APR Wizard on Governance channel It gets support of majority other wizards Comptroller update gets initiate with multisig wallet After 4/7 wizards sign the transaction, emissions get updated.

What risk parameters Dope Wizards will be responsible for?

Emissions and APR Interest Rate Curves LTV (Loan to Value) parameters Liquidation discounts and incentives Protocol fees

How would a Veto work? Anyone with over 1000 veDOP can submit a proposal on DropsDAO snapshot page to veto the update before or after it is passed.

The Veto proposal should last 3 days, would need 100,000 veDOP quorum and get the support of majority votes.

After it is successfully passed, emissions will be reverted to the previous value.