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With the current design if all delegation shares have been issued (exemption system is completely saturated), LS protocols can redeem their delegation shares to an ICA account they own, opening up capacity, then immediately allow a delegator to issue new delegation shares.
This means though the exemption is rate limiting to some extent, LS protocols can issue delegation shares beyond the exemption ratio, opening the LS protocol to solvency risk if there is a run on redemptions.
To mitigate this, upon delegation share redemption, a 21 delay could be added before opening new delegation share issuance capacity. This would prevent LS protocols from performing the above operation atomically. They would need to take on duration risk to free new capacity.
The text was updated successfully, but these errors were encountered:
A validator brought up recently that you may want to pause redelegation for the same duration when delegation shares are redeemed to slow the validator set redistribution.
With the current design if all delegation shares have been issued (exemption system is completely saturated), LS protocols can redeem their delegation shares to an ICA account they own, opening up capacity, then immediately allow a delegator to issue new delegation shares.
This means though the exemption is rate limiting to some extent, LS protocols can issue delegation shares beyond the exemption ratio, opening the LS protocol to solvency risk if there is a run on redemptions.
To mitigate this, upon delegation share redemption, a 21 delay could be added before opening new delegation share issuance capacity. This would prevent LS protocols from performing the above operation atomically. They would need to take on duration risk to free new capacity.
The text was updated successfully, but these errors were encountered: