Governed Parameters

Immutable Components

The following parameters define the rules and terms under which users interact with the system. Any alterations to these would impact active users’ positions and violate the core principles of trustlessness and self-custody.

• Minimum Collateral Ratio

• Critical Collateral Ratio

• Minimum CDP Size

• Collateral Type

• Number of Different Collaterals

• Gas Stipend

• Liquidation Incentives Algorithm

• Recovery mode

• Fee Recipient Address

Governable Parameters and Components

Parameter	Bounds	Timelock Period
Protocol Yield Share	0% - 100%	2 days
Redemption Fee Floor	0% - 100%	2 days
Redemption Fee Alpha (α)	0 - ∞	2 days
Redemption Fee Decay Factor (δ)	0 - ∞	2 days
Flash Loan Fee	0% - 10%	2 days
Grace Period	0 - ∞	2 days
Collateral Feed Source	-	2 days
Secondary Oracle	-	2 days
Primary Oracle	-	7 days
Extensible Minting	-	7 days
Flash Loans Pausing	-	0 days
Redemptions Pausing	-	0 days

Justification for Governable Parameters and Components

Protocol Yield Share

There are two primary reasons why maintaining the ability to modify the Protocol Yield Share percentage is justified, rather than using an immutable value. Firstly, the yield of stETH can fluctuate over time due to various factors. It is essential to adjust the protocol's yield share percentage to ensure the protocol's ongoing competitiveness and sustainability, in response to these fluctuations. Secondly, altering the protocol yield share can impact borrowing behavior, which in turn can lead to a tighter peg when required.

Redemption Fee Floor

The Minimum Redemption Fee serves to restrict arbitrage opportunities that may arise due to redemptions and establish a true price floor. Therefore, it is crucial that this fee is kept as small as possible. However, for security reasons, it must be at least equal to the maximum deviation threshold of the price Oracle. This is because setting the fee lower than the Oracle's reported price discrepancy can create an unrealistic arbitrage opportunity at the expense of the redeemed CDP.

Given this, it's important to have the ability to modify this parameter in case the maximum deviation threshold of the Oracle changes or if the system switches to a fallback Oracle with a different maximum deviation threshold. Additionally, if the system's soft peg mechanics are strong enough to enhance the price floor, disabling redemptions entirely by setting the minimum fee to 100% could be a consideration.

Redemption Fee Alpha (α)

This parameter determines the steepness of the value increase of the redemption fee in proportion to the redemption's volume. In other words, the higher it is, the larger the fee will scale too for a same amount of volume.

Given that the scaling fee algorithm is meant to limit the redemptions volume to no more than 1% of the available liquidity for arbitrages per day, the alpha can be modified in response to redemption usage patterns, changes in liquidity pool's TVL and unforeseen peg dynamics.

Redemption Fee Decay Factor (δ)

The decay factor determines how long it takes for the redemption fee to return to its initial value after it has been increased through the use of the mechanism. A longer decay factor means it will take more time for the fee to return to its initial value, while a shorter decay factor will make the process quicker. It is important to find a balance where the decay factor is large enough to allow the market to naturally adjust to the increase in demand caused by redemptions, but short enough to enable effective arbitrage of short-term price volatility. In some cases, the initial decay factor may be too large or too short to meet these expectations, requiring consideration around adjusting it. Any changes to the decay factor must be justified through careful modelling using historical data and projections.

Flash Loan Fee

There are three main reasons to consider adjusting Flash Loan fees. Firstly, to maintain competitiveness in the market, these fees can be increased or decreased. Secondly, and more importantly, they may be adjusted to prevent them from becoming an obstacle or disincentive for liquidators and arbitrageurs. Lastly, fees can be set to 100% in order to completely disable the Flash Loan functionality as necessary.

Grace Period

The Grace Period is primarily introduced for the purpose of enhancing system security. The current period has been identified as optimal for safeguarding the system and its users. If the ecosystem's properties change, the Grace Period can be adjusted accordingly to maintain its intended purpose.

Collateral Feed Source

This boolean parameter controls the inclusion of the stETH/ETH feed into the primary oracle's aggregated price, activating only if a significant depeg between these two assets is detected. By default, this parameter is disabled, leading the system to treat stETH and ETH as pegged at a 1:1 ratio. This default setting promotes greater stability and efficiency within the system, ensuring seamless operations under normal market conditions.

Secondary Oracle (fallback)

The fallback oracle serves as an additional layer of security, activating only if the Primary Oracle fails or provides erratic data. The dynamic nature of the DeFi ecosystem and the continuous evolution of oracle technologies justify the need for governance control over the Secondary Oracle. By allowing updates or additions to the fallback oracle list, eBTC ensures it can leverage the most secure and reliable data sources available, further enhancing the protocol's robustness against external dependencies.

Primary Oracle

While the primary oracle, Chainlink, has established a strong track record for reliability and security, no system is immune to the risk of failure or manipulation. The governance capability to change the Primary Oracle ensures eBTC can adapt to unforeseen events, such as oracle failure, by transitioning to a more reliable source if necessary. This governability is crucial for preserving the protocol's stability and safeguarding user assets against price feed inaccuracies.

Extensible Minting

In order to future proof the system, the ability to add new contracts to the minters/burners list is preserved by governance. This in case an opportunity arise to introduce new products that can harden the peg such as AMOs without compromising on decentralization or censorship resistance.

Pausing of Redemptions and Flash Loans

In the rare event that the Redemption or Flash Loan mechanisms are misused in a malicious manner to harm the system, eBTC’s TechOps may pause these features to ensure the security of the system.