Does it mean that in case of scenario #1 stablecoins fully collaterized by ETH (such as LUSD) could easily retain their value by just printing more coins out of increased value of ETH while other stables collaterized by USDC (including FRAX) maybe would have collapsed? Did you consider replacing USDC by just some portion of LUSD (along with ETH and other hard assets) just in case anything like that could happen…? Why is not naked LUSD including in collateral at all if that could help to stabilize FRAX?
No in scenario #1 where USD value drops to near 0 then holding LUSD doesn’t help at all. This is because LUSD is backed by ETH loans, not ETH itself. The protocol doesn't have a claim to the ETH, it only has a claim to liquidate it if the price drops. It can't do anything else to the ETH and doesn't get the upside from ETH, the borrower does. In order for it to get the upside, the Liquity protocol itself needs to own ETH POL, which it does not.
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