PI-12: Decrease Excessively Low L2SR Threshold

Executed on September 8, 2025 at 08:48 UTC.

Summary

Decrease the Excessively Low L2SR Threshold from 12% to 5% in order to incentivize Converts Up.

Problem

The Pinto price was below the value target, which was largely attributed to downward price volatility in the crypto market. During this time, there had been minimal value Withdrawn from the protocol, indicating that even if there were Converts that increased the price to the value target, it was unlikely to decrease the amount of liquidity in the protocol.

Given this information, it was likely suboptimal for the protocol to so heavily disincentivize Upward Converts.

The Excessively Low L2SR Threshold ( $R^{W^{L o w er}}$ ) enables the protocol to prioritize preserving liquidity during periods of excessively low liquidity. Accordingly, when this threshold is met (i.e., the liquidity level is below the threshold), the protocol decreases the Crop Scalar ( $X_{t}$ ) by up to 50 percentage points per Season toward its zero floor, moving toward a state in which value held in the LP token with the highest Seed rate is rewarded with the highest relative number of Seeds permitted by the lower bound of the Crop Ratio.

With the Convert Down Penalty adjusted in PI-11, during positive-TWAΔP Seasons while mints tracked toward the active threshold remain below it, there is a 100% Mown Stalk Penalty (subject to the non-Germinating minimum) on the portion of a Pinto-to-LP Convert below $1.005 (the then-current Convert Penalty price). The combination of the low Crop Ratio and additional friction to Convert Down had created conditions where there was an extremely high disincentive to Convert Up.

Solution

Decreasing $R^{W^{L o w er}}$ to 5% moves the L2SR of 8.5% from the excessively low range into the reasonably low range. In the newly reclassified L2SR range, the Crop Scalar increases by up to 1 percentage point per Season when the TWAΔP is nonpositive, Pod Rate is at least 15%, and required liquidity oracles succeed. A higher Crop Scalar raises the Crop Ratio, increasing Pinto’s Seed rate relative to the LP token with the highest Seed rate. This reduces the Seed advantage of holding LP tokens and can make Converting LP to Pinto (Converting Up) more attractive.

Rationale

While the ideal solution would be to design a system that dynamically adjusts the L2SR thresholds as a function of the historical lookback of value Withdrawn from the protocol, implementing a multi-Season lookback to support such a peg maintenance feature is a major development undertaking. A lower friction, short term solution is to lower $R^{W^{L o w er}}$ from 12% to 5%.

Contract Changes

Other Contract / Parameter Changes

Updated s.sys.evaluationParameters.lpToSupplyRatioLowerBound from 0.12e18 (12%) to 0.05e18 (5%). All other EvaluationParameters fields were unchanged. The threshold is expressed with 18-decimal precision and the excessively low classification uses a strict less-than comparison. L2SR values from 5% inclusive to 12% exclusive therefore move from excessively low to reasonably low. The call did not reset the Crop Scalar or change the Crop Ratio bounds. It also left the Convert Down Penalty Gauge value and data unchanged at execution.

Function Changes

No contract deployments or facet replacements were needed to decrease $R^{W^{L o w er}}$ . No initializer was called and no library implementation was deployed or replaced. The threshold was updated by calling updateSeedGaugeSettings(EvaluationParameters) on the Pinto Diamond. Execution transaction: https://basescan.org/tx/0x07d8b545c63e5d6af2ab8546d8b564ba7105db9de1f000f344d07f33e72e7d17. No function code or ABI changed. The existing owner-or-contract-only function stored the full EvaluationParameters struct and returned no value.

The unchanged convertDownPenaltyGauge(bytes,bytes,bytes) also reads this threshold. On a successful Season engagement that reaches its time-and-liquidity calculation with nonzero L2SR, it multiplies the remaining time factor by the lesser of L2SR divided by the threshold and 100%, using 18-decimal fixed-point arithmetic. For example, at 8.5% L2SR, that liquidity factor rises from approximately 70.83% to 100%, holding the time factor fixed. The positive-TWAΔP mint-threshold branch returns before this calculation, including when the threshold is cleared. Zero L2SR retains the prior penalty ratio, and a failed gauge call retains the prior value and data.

Event Changes

Emitted the existing UpdatedEvaluationParameters(EvaluationParameters) event with the full updated struct. No event signature changed.