Understanding bnUSD and the underlying mechanics

[Uglyrage]

I feel my understanding of bnUSD & rebalancing has deepened not only by reading the official documentation, but by trying to help improve the reasoning about it, and suggesting improvements. Thereby giving an “unfair” advantage over the more “passive” investor.

The more i think about it… The more amazing this “magic” internet money becomes. The main reason i see for it behaving in unexpected ways, is the fact that alot of users behave against their own best interest, and against the platform. Not because they are actively trying to sabotage it, but because they lack the understanding to make it work for them.

So my thesis is this… The better we together understand bnUSD. The better it will function. I want to kick of with some examples:

• People who try to “Undo” rebalancing of their positions, are in fact causing more rebalancing (and incurring fees while doing it).
• To entice people to “mint” bnUSD, all we need is the faith that it will be worth at least $1 at some point in the future.
• People should account for fluctuations in their loan when they allocate it. Preferably so that they aren’t forced to move against the market.

Ideally all investors take out loan’s when bnUSD is expensive, and payback when bnUSD is cheap. For those able to do that. There are far greater profits to be made than the BALN incentive given on loan positions.

[Collapseby2050]

I wholeheartedly agree with you. Knowledge is power.

• People who try to “Undo” rebalancing of their positions, are in fact causing more rebalancing (and incurring fees while doing it).

This is the reason why I am against offering the option to sell locked collateral in order to lower the loan amount. In most cases, it simply doesn’t work for the reason you’ve mentioned. It only works when no one else does it.

I believe that Balanced with its current rebalancing mechanism is not meant to offer a high leverage position. See my quoted text below.

@Collapseby2050

Borrowers are the main people helping bnUSD keep its peg. They do so by buying or selling sICX when needed, also known as rebalancing.

When you get liquidated, not only do you stop providing value as a borrower, you negatively affect the peg of bnUSD by having liquidators retire bnUSD for you.
By getting liquidated you also make the job of other borrowers harder; they now have to fill in for your role as well.

Balanced is not a platform where we can let our borrowers leverage themselves to liquidation. Micro managing of high leverage positions also exaggerates rebalancing.

In my eyes the current rebalancing mechanism does not need any changes. The people do. And the easiest way to do it is by lowering LTV excessively. Down to about 15%.