Let’s discuss lowering the rebalancing threshold to make the bnUSD peg tighter. For some background, the original threshold was 0.5%. During the first market crash post-balanced launch, the community saw the effects of this and it was causing a lot of chaos. We changed the threshold to 5% in order to stop it from happening while we worked on enhancements.
We have now made considerable improvements. Now, on average, all borrowers will be rebalanced the same amount on a percentage basis and each rebalance transaction is only a maximum of 0.05% of your debt.
There is also no arbitrage for outside traders anymore, all price difference benefits go to borrowers. If the peg is broken at 8% premium, borrowers have their collateral sold (or buy sICX) at an 8% premium.
Although it sometimes doesn’t feel like it, rebalancing is similar to taking part in a process that automatically takes advantage of market miss-pricing / arbitrage for the users. Rebalancing sells at a premium and buys at a discount on behalf of borrowers. Additionally, please see this thread on twitter detailing how to use the sICX/bnUSD pool to counteract the effects of rebalancing.
I propose that we lower the threshold to 3.5%, with the intention of continued tightening as we see the effects in practice. Here are some reasons to tighten the peg:
Better stablecoin utility
The most obvious reason - we need bnUSD to actually be pegged to 1 USD for people to use it as a stablecoin
A potential ~10% shift in value (0.95 up to 1.05) of a stablecoin isn’t acceptable for users that expect to be holding a stablecoin
Better trade execution
Right now, people trying to buy sICX on Balanced often won’t do it because the price is too high (bnUSD peg is below $1). This is missed volume and missed revenue for the DAO
The idea of bnUSD is to always be able to trade it for $1 of an asset. Currently, that’s not the case because of the loose rebalancing threshold.
Inclusion in OMM
We need bnUSD to be more stable if users of OMM are going to be able to reliably use it as collateral and/or borrow it. Imagine you think you have a stablecoin as collateral, then bnUSD price crashes 10% and liquidation becomes a fear.
Amazing points. As a person that experienced the chaos of rebalancing during volatility in the market I think we are ready now to tighten the peg. The points/changes you put forth (threshold to 3.5%, maximum 0.05% of debt rebalanced at a time and that rebalancing occurs at a premium for borrowers compared to the market) I support it all.
With MetrICX giving us notifications of rebalancing events soon, this will also enhance user experience which we didnt have when the chaos of rebalancing occurred months ago.
Hi Scott. I will vote in favor of the proposal. I think 3.5 is still relatively high. Do you think that is the ideal variable value, or do you want to lower it even further it in smaller steps, so seperate proposals?
Every user of Balanced should have already understand the importance of rebalancing as a mechanism of fixing the peg of its stable coin, bnUSD. Scott, as always, described it perfectly.
For quite some time now, the peg is loosen, impacting many functions of the platform, after the community had asked for it to be. So it is time now and after the recent changes, to lower the % by a mild transition. i will agree to this vote eventually, to experience with it, but i want to share some thoughts also.
I believe, that although 3.5% is a start, it is not sufficient for NOW to see meaningful results and should be quite temporary. I’d preferred a bit lesser % because i think it will be still kept more loosen than that. The reasons are…
a) Less aggressive-profitable riskier for the arbitrager than before, for quite many reasons, especially at the limit.
b) lack of rebalancers as is .
c) lack of understanding for the majority at what price it can be done (sicx price making it harder) and how do it practically.
(As for b) and c) I would suggest a button in UI that will be clickable when the opportunity of rebalancing is ACTIVE with a brief explanation, as soon as its possible . The smart contract already have a read only function for that - for someone who is code friendly)
@VagPan@Nessaki thanks for jumping in and I agree with both of you. This is an incremental step, but I think based on community feedback I’ll make a slightly larger jump to 3%, still with the intention of further tightening over the coming weeks.
Also, if any of you are eligible to submit a proposal yourself, it would be cool to get other community members involved. The 100 bnUSD fee is refunded if the proposal passes.
And Vag - it’s funny you mention that button. I brought it up just a few days ago to the parrot9 team. They’re working on a design then the frontend guys will make it happen.
When it comes to investors money (All of DeFi) clearer means people feel more in control, and people being more comfortable to invest in the platform in any way. There is some inconvenience / misunderstanding on the pegging / rebalancing atm…
People appear to see the result of bnUSD being of peg as some kind of balanced trading fee
Rebalancing is perceived as something entirely negative
So imo clear = key.
Stablecoins should be stable, anything just causes alot of confusion.
Right now, alot of people see rebalancing as something negative. I feel this has 2 main reasons:
It suprises people (however awesome the reason is, if you wake up, not knowing how much icx you will have left in the morning, after a holliday or whatever is harmfull).
While rebalancing sells your sICX at a premium… it only does so when ICX is tanking, so more often than not, you sell for less than yesterday’s value. Also, when ICX price tanks, ICX investor mood usually follows, so less positive in general
I think we can partly counter those points in 2 ways. More messaging of the rebalancing principle at the time of taking the loan / depositing collateral, maybe place a link to the excellent blog post straight in the U.I?
Also, deeper bnUSD pools, would keep the price more stable by itself. Maybe we could get some whales to mint some bnUSD and drop it in lp’s?
Maybe the Icon foundation could help with this, or maybe even the DAO fund itself?
That being said, i’m all for tightening the peg! Way to go Balanced team
I agree with the 3% threshold change with the aim to reduce it to 1%. We need to get bnUSD back to a 1:1 with iUSDC. Do you think that introducing a USDS:bnUSD pool would help the pegging by allowing arbitragers to drive up the prices of discounted stablecoins? This may close the loop with the 3 stablecoins.
I think 3.5% is a good start, but we should aim to restore it to 0.5% perhaps with a greater fee to minting bnUSD so that it doesn’t get exploited again.
We can vote after BIP6 or possibly sooner. Anybody can submit a vote fwiw but I was planning on waiting for BIP6 to end as to not have multiple votes going at the same time. There’s no major issue holding it up though
