"Bold and drastic action" is a bad idea

In the Maker Risk and Governance call today, Barron Gati illustrated various possible scenarios for approaching changes in the stability.

Low and slow

Change the stability fee slowly, over a long period of time, in order to signal to the market "peace", "tranquility", and "security". Don't freak out the market, and just slowly raise the SF until DAI slowly returns to $1

Hard and fast

Signal that the SF will be raised by a large amount every week until the DAI peg returns to $1. Signal to the market that the cost of capital for CDP holders is about to get really expensive, and shock them into repaying their CDP and reducing DAI supply.

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Like all things in life, the correct answer is somewhere between these two extremes.

However, I believe the correct answer lies closer to the "Low and Slow" method, than the "Hard and Fast".

The core premise of this post:

the "Hard and Fast" approach is playing with fire.

"Hard and Fast" is how you shake up the market into behaviors you cannot account for. "Hard and Fast" is how you find out how far the long-tail of risk goes. "Hard and Fast" is how you trigger a black swan event.

In the governance call, the argument was brought up that "Market Makers havent been able to sell DAI @ $1 for many months now, and they would mitigate the risk associated with a hard and fast approach.

I think theres a case where they could actually exasperate it. If DAI starts zooming up to $1, maybe it zooms up to $1.02. Maybe large DAI holders think it might get greedy, euphoric, and might want to see how far DAI goes before selling. Maybe, it triggers a deflationary spiral, where no one wants to sell DAI because its $1.10 and rising.

"Hard and Fast" is also known as "Provide the market with little time to digest a lot of information".

When it comes to preserving DAI as a stable asset, going "hard and fast" is not the right approach. "hard and fast" is instability. It's fear and anxiety.

Central Banks do not operate this way. They operate with general caution.

I frequently compare MakerDAO to Bitcoin, and Bitcoin does not operate this way. It treats all potential risk extremely warily.

I lean towards "Low and Slow". If we don't get DAI back to $1 at a fast timeline, who cares? We got it there in the end, and we didn't break anything on the way there? Whats an extra month or three, when MakerDAO is being designed for centuries or more. Lets not play with fire when we dont need to.

Cheers.

@trustlessstate