Reseting debt, seems to have created a mismtach in premium pricing which is currently a functin of debt ratio.
This maybe leading to longer than normal contraction cycles. Wouldn’t it make more sense to price the premium as a function of coupon ratio? Or alternatively to keep the same formula, we could use virtual debt, which is what debt would have been without reset?
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The premium will cause a bot issue? There will never be any excess debt. Debt still goes to zero.
I don’t follow. Excess debt was causing that issue, Actual debt will still reset per EIP-1.
Yeah I 100% agree. In my original blog post I said that debt remembers the bad times, so that the system doesn’t go back to supply expansions too quickly. But since EIP1 we now forget the bad times and try to go back to expansions as soon as we can. But you are right - this is not the only issue with the debt reset. Resetting debt to zero also causes coupons to be mispriced, as coupon discounts also go back to zero. By pricing coupons at a low discount we are effectively signalling to coupon buyers that coupons are low risk. But traders will remember recent bad times (even though the post-EIP1 system has forgotten) and they know that coupons are high risk. But I think the team know already know this is the case and the new mechanisms being explored will address this. EIP1 was an urgent and necessary quick fix. So we’ll address the side effects of this as we go.
And I fully agree that this can be done without reintroducing the bot problem due to excess debt. The likely outcome is that we will have a new coupon pricing mechanism, one that would encourage people to buy them as soon as they are issued and where risk is always proportional to reward.
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Your concern is right. I have highlighted this issue and provided solution as described in EIP-2:
We should not reset debt but Coupon Premium.