I’m in favor of using % error over absolute error in order to be future proof. We don’t want to have the price drift in either direction and be forced to update Kp/Ki as a result.
Of the RAI controller scenarios, I currently like the last option best:
- Deploy a controller and allow its implementation to be changed using predeployed smart contracts; here, RAI can have P or PI controllers already deployed where the community can change Kp/Ki values within certain bands as well as swap the controller logic between P, PI and their absolute and percentage error variations
I don’t think we need the absolute error versions, and I think, in the spirit of ungovernance, that it might be ideal to have P & PI controllers where you can not only set the params within a range, but narrow the parameter range as well. So for example, every year that the controller params are deemed successful, we could narrow the parameter range by 20%. If that’s too much work, I think we should just use the P & PI controllers with fixed param ranges.
That said, even though we shipped a PI controller, the I-term is still an unknown since we haven’t actually tried to set to anything other than 0. I think it’s imperative that we at least try the I-term in prod before we make any decisions about setting the controller type in stone. Given that ungovernance is coming in August, and because these kinds of real-world tests take time, I propose we start an experiment to turn on the I-term on RAI’s 1st birthday: February 17th, 2022. We can run it until August, and then have more information with which to decide on the controller type and params.
To be clear about what I expect from the PI controller to be different than the P-only:
- with P-only, the controller experiences “steady-state error” or extended market price (MP) deviations from RP (redemption price)
- with PI, the controller would accumulate and persist steady-state error via the I-term
- for example, we’ve had on avg -6% redemption rate over the past month, if the I-term accumulated that at a rate of 1/3 the P-term per month (a simplified way of expressing the Ki constant), then the redemption rate from the I-term would reach -2% by the end of the month, and the total redemption rate would be the P-term + I-term so -8%
- if at the end of the said month the MP reached equilibrium with the RP, the P-term rate would be 0%, but the I-term rate would still be -2%
- this persisted rate is what provides the incentive for RAI arbers to actually bring the RAI price back to the redemption price (and not just above/below which we see with P-only) because they are incentivized by the non-zero rate at equilibrium (which is 0% for P-only)
- it also allows RAI arbers to arb via longer-time horizon positions, since they can count on the I-term rate to persist for some time, or at least dissipate gradually
The risk of the I-term is that it introduces second-order dynamics into the system, which can be scary. But with RAI in prod for nearly 1 year, the community having largely come to grips with the P-only controller, and 6 months before ungovernance proper, I think now is the time to run the I-term experiment and see if our fears are founded.
I’ll follow in a separate post with a proposal for what the Ki & I-term controller params could be!