The current SigUSD is an interesting DeFi protocol—I see plenty of people playing with it. I don’t believe it makes sense to turn it into a full-fledged stablecoin protocol given the myriad of issues it presents. Instead, it should remain an alternative DeFi protocol for those who are interested. The more such protocols we have in the ecosystem, the richer our DeFi experience becomes.
One parameter I would change is the fee for SigRSV. Currently, both SigUSD and SigRSV incur a 2% fee for minting and redeeming, but these fees are not equivalent in effect. With reserves starting at around 400%, the initial conditions for long and short positions are unbalanced. For a short position on SigUSD to break even, the price of ERG would need to drop by 4% (2% + 2%). In contrast, a long position (minting SigRSV) would require the ERG price to rise by 16% (calculated as (2% + 2%) Ă— 4) or sometimes even more.
Since the protocol is designed to incentivize reserve accumulation, these fee settings are fundamentally flawed. I recall posting on a forum a while back about the need to lower the fee for SigRSV. If the fee were reduced to 0.75% instead of 2%, the break-even point for longs would be a 6% price change. Although this is still higher than that for short positions, it would at least encourage more participation in the protocol.
In summary, as an experimental protocol, SigUSD is difficult to transform into a fully functional stablecoin. Its design lacks scalability, and its implementation is fraught with problems. However, by improving the conditions for long positions, the protocol could become more engaging—and, more importantly, a fairer DeFi experiment—by truly encouraging participants to take risks. Under the current parameters, SigRSV holders have little hope beyond relying on passive income and betting on short-sellers to fail. There is significant potential to make the protocol much more exciting.
Additionally, consider burning the keys and reducing the Reserve Ratio from 400% to 300%—this change would also benefit longs. If these adjustments are simply a matter of updating parameters rather than overhauling the system, then the proposed changes are as follows:
- Change the RR from 400% to 300%
- Reduce the minting/redeeming fee for SigRSV from 2% to 0.75%
- Burn the keys
With these modifications, even the sluggish oracle would become a feature rather than a bug. Overall, these changes would make the protocol more engaging—and, most importantly, fairer.