Surplus Auction House

Surplus auctioneer that sells extra stability fees in exchange for protocol tokens

1. Summary

The surplus auction is used to sell off a fixed amount of the surplus in exchange for protocol tokens. The surplus comes from the stability fees charged to SAFEs (and stored in the AccountingEngine). Bidders submit increasing amounts of protocol tokens and the winner receives all auctioned surplus in exchange for their coins which are burned or transferred to another address.

2. Contract Variables & Functions

Variables

• contractEnabled - settlement flag (available only in the pre-settlement surplus auction house)

• AUCTION_HOUSE_TYPE - flag set to bytes32("SURPLUS")

• authorizedAccounts[usr: address] - addresses allowed to call modifyParameters() and disableContract().

• bids[id: uint] - storage of all Bids by id

• safeEngine - storage of the SAFEEngine's address

• protocolToken - address of the protocol token

• auctionsStarted - total auction count

• bidDuration - bid lifetime / max bid duration (default: 3 hours)

• bidIncrease - minimum bid increase (default: 5%)

• totalAuctionLength - maximum auction duration (default: 2 days)

• protocolTokenBidReceiver - receiver of protocol tokens after an auction is settled. Only present in the RecyclingSurplusAuctionHouse.

Data Structures

• Bid - state of a specific auction

  • bidAmount - quantity being offered for the amountToSell

  • amountToSell- amount of surplus sold

  • highBidder

  • bidExpiry

  • auctionDeadline - when the auction will finish

Modifiers

• isAuthorized **** - checks whether an address is part of authorizedAddresses (and thus can call authed functions).

Functions

• modifyParameters(bytes32 parameter, uint256 data) - update a uint256 parameter.

• modifyParameters(bytes32 parameter, address addr) - update an address parameter. Only present in the RecyclingSurplusAuctionHouse.

• startAuction(amountToSell: uint256, initialBid: uint256) - start a new surplus auction.

• restartAuction(id: uint256) - restart an auction if there have been 0 bids and the auctionDeadline has passed.

• increaseBidSize(id: uint256, amountToBuy: uint256, bid: uint256) - submit a bid with an increasing amount of protocol tokens for a fixed amount of system coins.

• disableContract() - disable the contract.

• settleAuction(id: uint256) - claim a winning bid / settles a completed auction.

• terminateAuctionPrematurely(id: uint256) - is used in case Governance wishes to upgrade (only) the PreSettlementSurplusAuctionHouse or in case GlobalSettlement is triggered. It settles increaseBidSize phase auctions, sending back the protocol tokens submitted by the highBidder.

Events

• AddAuthorization - emitted when a new address becomes authorized. Contains:

  • account - the new authorized account

• RemoveAuthorization - emitted when an address is de-authorized. Contains:

  • account - the address that was de-authorized

• ModifyParameters - emitted after a parameter is modified

• RestartAuction - emitted after an auction is restarted. Contains:

  • id - the ID of the auction being restarted

  • auctionDeadline - the new auction deadline

• IncreaseBidSize - emitted when someone bids a higher amount of protocol tokens for the same amount of system coins. Contains:

  • id - the ID of the auction that's being bid on

  • highBidder - the new high bidder

  • amountToBuy - the amount of system coins to buy

  • bidAmount - the amount of protocol tokens bid

  • bidExpiry - the new deadline when the auction will end which can be before the original auctionDeadline

• StartAuction- emitted when startAuction(uint256, uint256) is successfully executed. Contains:

  • id - auction id

  • auctionsStarted - total amount of auctions that have started up until now

  • amountToSell - amount of system coins sold in the auction.

  • initialBid - starting bid for the auction

  • auctionDeadline - the auction's deadline

• SettleAuction - emitted after an auction is settled. Contains:

  • id - the ID of the auction that was settled

• DisableContract - emitted after the contract is disabled

• TerminateAuctionPrematurely - emitted after an auction is terminated before its deadline. Contains:

  • id - the ID of the auction that was terminated

  • sender - the address that terminated the auction

  • highBidder - the auction's high bidder

  • bidAmount - the latest bid amount

3. Walkthrough

In a surplus auction, bidders compete for a fixed amountToSell of system coins with increasing bidAmounts of protocol tokens.

The surplus auction ends when the last bid's duration is passed (bidDuration) without another bid getting placed or when the auction duration (totalAuctionLength) has been surpassed. When the auction settles, the protocol tokens received are burnt in the case of a BurningSurplusAuctionHouse or transferred to a separate address in the case of RecyclingSurplusAuctionHouse.

In case governance disables the surplus auction house by calling disableContract, anyone can call terminateAuctionPrematurely in order to quickly settle an auction and return the protocol token bid to the highBidder.

4. Gotchas (Potential source of user error)

Keepers

In the context of running a keeper (more info here) in order to perform bids within an auction, a primary failure mode could occur when a keeper specifies an unprofitable price for RATE.

• This failure mode is due to the fact that there is nothing the system can do to stop a user from paying significantly more than the fair market value for the token in an auction (this goes for all auction types, collateral, surplus, and debt).

• Keepers that are performing badly in a surplus auction run the risk of overpaying RATE for the Coin as there is no upper limit to the bidAmount size other than their RATE balance.

Bid Increments During an Auction

During increaseBidSize, bidAmount amounts will increase by a bidIncrease percentage with each new increaseBidSize. The bidder must know the auction's id, specify the right amount of amountToSell for the auction, bid at least bidIncrease % more than the last bid and must have a sufficient RATE balance.

One risk is "front-running" or malicious miners. In this scenario, an honest keeper's bid of [Past-bid + bidIncrease%] would get committed after the dishonest keeper's bid for the same, thereby preventing the honest keeper's bid from being accepted and forcing them to rebid with a higher price ((Past-bid + bidIncrease) + bidIncrease)). The dishonest keeper would need to pay higher gas fees to try to get a miner to put their transaction in first or collude with a miner to ensure their transaction is first. This could become especially important as the bid reaches the current market rate for RATE<>Coin.

Quick Example:

The bidIncrease could be set to 3%, meaning if the current bidder has placed a bid of 1 RATE, then the next bid must be at least 1.03 RATE. Overall, the purpose of the bid increment system is to incentivize early bidding and make the auction process move quickly.

Placing Bids Incorrectly

Bidders send RATE tokens from their addresses to the system/specific auction. If one bid is beat by another, the losing bid is refunded back to that bidder’s address. It’s important to note, however, that once a bid is submitted, there is no way to cancel it. The only possible way to have that bid returned is if it is outbid (or if the system goes into Global Settlement).

Illustration of the bidding flow:

1. AccountingEngine startAuction's a new Surplus Auction.

2. Bidder 1 sends a bid (RATE) that increases the bidAmount above the initial 0 value set during the startAuction. Bidder 1's RATE balance is decreased and the SurplusAuctionHouse's balance is increased by the bid size. bid.highBidder is reset from the AccountingEngine address to Bidder 1's and bid.bidExpiry is reset to now + bidDuration.

3. Next, Bidder 2 makes a bid that increases Bidder 1's bid by at least bidIncrease. Bidder 2's RATE balance is decreased and Bidder 1's balance is increased by Bidder 1's bidAmount. The difference between Bidder 2's and Bidder 1's bidAmount is sent from Bidder 2 to the SurplusAuctionHouse.

4. Bidder 1 then makes a bid that increases Bidder 2's bidAmount by at least bidIncrease. Bidder 1's RATE balance is decreased and Bidder 2's RATE balance is increased by Bidder 2's bidAmount. The amount Bidder 1 increased the bid is then sent from Bidder 1 to the SurplusAuctionHouse.

5. Bidder 2, as well as all the other bidders participating within the auction, decide it is no longer worth it to continue to bid higher bidAmounts, so they stop making bids. Once the Bid.bidExpiry expires, Bidder 1 calls settleAuction and the surplus Coin tokens are sent to the winning bidder's address (Bidder 1) in the SafeEngine and the system then burns the RATE received from the winning bidder. gem.burn(address(this), bids[id].bid).

5. Failure Modes (Bounds on Operating Conditions & External Risk Factors)

• Resulting from when RATE is burned

  • There is the possibility where a situation arises where the RATE token makes the transaction revert (e.g. gets stopped or the AccountingEngine's permission to call burn() is revoked). In a case like this, deal can't succeed until someone fixes the issue with the RATE token. In the case of stoppage, this could include the deploying of a new RATE token. This new deployment could be completed by any individual using the MCD System but governance would need to add it to the system. Next, it would need to replace the old surplus and debt auctions with the new ones using the new RATE token. Lastly, it is crucial to enable the possibility to vote with the new version as well.

• When there is massive surplus

  • This would result in many SurplusAuctionHouse auctions occurring as the surplus over surplusAuctionAmountToSell + surplusBuffer is always auctioned off in surplusAuctionAmountToSell increments. However, auctions run concurrently, so this would "flood the keeper market" and possibly result in too few bids being placed on any auction. This could happen through keepers not bidding on multiple auctions at once, which would result in network congestion because all keepers are trying to bid on all of the auctions. This could also lead to possible keeper collusion (if the capital pool is large enough, they may be more willing to work together to split it evenly at the system's expense).