Basis-Cash Improvement Proposals #2

Title: Burn Excess Seignorage from Treasury
Author: @defibeth, @fr-jerry-smith
Category: Economic

Simple Summary

The Basis Cash Treasury contract currently holds all excess seignorage from the past two BAC expansions, with its current balance totaling in nearly 500M BAC. This is obviously a problem, as: (i) this seignorage allocation was incorrectly executed by two different Boardroom contracts that was, or will be migrated; (ii) this excess supply leads to an incorrect, hyper-inflated valuation of circulating BAC supply; and (iii) could be a potential attack factor.

As such, the authors are proposing to burn all current BAC seignorage being held by the Treasury contract, excluding 1,001 BAC as originally intended by the protocol. This will allow any excess seignorage to be sent to the new Boardroom contract for them to be correctly distributed to BAS holders.

Motivation

BAC maintains its algorithmic stability through an incentivized monetary policy of expansion (Share dividends) and contraction (Bond redemption). The Treasury is a crucial component of this system as it controls any excess BAC supply, either for BAS distribution to the Treasury or redemption of BAB. However, as BAC has been trading at a minimum ~60x premium since protocol launch, this led to unacceptable amounts of BAC seignorage being held in the Treasury contract in an attempt to keep BAC on peg. As Boardroom launch was delayed none of the excess seignorage was distributed to shareholders and entered circulation, causing the protocol to print even more BAC on second expansion. Currently the Treasury contract holds nearly 500M BAC, valuing in more than $5 trillion at the time of writing.

This is completely unacceptable considering the current price of BAC, which in theory should only result in ~100x seignorage expansion. Thus it is trivial to burn any excess BAC issued by the protocol due to the Boardroom contract not being launched on schedule.

Specification

We are proposing to implement two primary changes:

1. All current seignorage BAC holdings of the Treasury will be burned, excluding 1,001 BAC. This will allow the Boardroom to distribute excess seignorage to BAS holders instead on next expansion, returning BAC to peg as intended.
2. We will implement an initialize function on a new, migrated Treasury contract. This function can only be called once to burn any excess seignorage holdings, and should not be executed thereafter.
3. Bonds are only redeemable if 1 BAC < 1 DAI. This is to prevent potential attack factors with Bonds, as any additional seignorage will be sent to the Treasury if there are any BAB in circulation.