Those of you who have participated in the Dutch Auctions, a key component of the Protocol that provide the arbitrage opportunity to stabilise the $FLOAT price, have seen that the auctions start at a very unprofitable price to buy or sell $FLOAT.
This is the called a fool’s price as it would be very unprofitable to take by a particular user but very profitable for the Protocol. This is because we add/subtract a 10% buffer to the FLOAT market price in the event of an expansion/contraction to get the fool’s price as a matter of safety. By doing this it protects against stale TWAP prices and oracle data which could lead to a poor auction. Unfortunately this means though that:
- The Auctions can take many blocks to enter the profitable regime which means unnecessarily long Auctions.
- The granularity of the price change per Block of the Protocol is larger than necessary which can lead to unfavourable positions for participants if the step sizes are too large. Nota Bene: The way our Dutch Auctions operate is that you always get the price you bid at or better .
These points are very evident when the price starting price delta between the market price and target price is relatively small i.e. less than 10%. In these cases, sometimes the Dutch Auction doesn’t become profitable until the last 30 Blocks, and the granularity of the price change is very large.
The core team has been thinking about changing the buffer to be much finer but be relative to the delta between the market price and the target price, rather than just the ±10% on the market delta.
foolsPrice = marketPrice ± 0.1 * marketPrice ; (expansion, contraction)
Core team suggestion:
foolsPrice = marketPrice + 0.1 * (marketPrice - targetPrice)
With the core team’s suggestion, this way the buffer scales with what the delta is between the market and target price, rather than just being relative to the market price. Furthermore, this should enable a longer profitable Block widow during the Dutch Auctions and improve the offer price granularity thus allowing for more participants to enter the auctions.