As a holder of Balanced, I believe the core team generates more value than borrowers, thusly, the fact they previously had the same costs to the platform is even more stark and more obvious that something was wrong before.
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“Borrowing COSTS money normally”
But Balanced has the intrinsic cost of borrowing - the rebalancing cost! I have a loan since the start of the platform, and the collateral is being continuously sold to compensate for bnUSD peg fluctuations.
In order to keep the same collateral level, you have to compensate for rebalancing from your pocket, this amount is variable and depends on the market - the nature of this fee is the same as the interest rate.
This is a hidden interest, de facto, and it is comparable to OMM borrowing cost for ICX, for exemple. And there is an origination fee for issuing a loan, ofc.
Rebalancing is net profit to borrowers, it is basically an arbitrage bot for borrowers.
Its a perk to me.
Additionally, correct, borrowing normally costs money, this perceived cost of borrowing(rebalancing) via Balanced instead, if the borrowing reward was zero, is still a net difference between the normal interest rate and zero. That would be the ‘payment’ for the service of rebalancing.
Right now borrowers gain:
- BALN rewards (and still will in the future)
- Net extremely low interest rates (1 time origination)
- Arbitriage from rebalancing
How any particular market participant values each of the above, is a matter of their investment strategy.
There will be people not interested in 2 and 3, and only 1, thusly the service will be valued lower for them. Its a balance, there is clearly demand for 2, as evidenced by plain borrowing platforms.
Personally 3 is attractive to me, I am envious of the nice arbitrage trades people do, but don’t have the time to execute them, this lets me get a bit of the pie. This might be completely different for someone else that absolutely views flucuations in their ICX levels as taboo, this is okay, there are other products for these people. We as the Balanced platform, should not seek to fully cover that segment of the market, as there is plenty of other sectors.
Additionally, the total nominal reward amount, has NO DIRECT BEARING, on the reward rate. This is true for LPs, this is true for borrowing. The rate is determined by the amount of the market that wishes to partake in that service for a particular rate. The borrowing reward weight will drift towards current levels, after the initial fall, as participants that do not wish to provide the service for the terms given exit. The reward rate will naturally rise as they exit. Where the final rate ends up, depends on what the market believes the newly adjusted service is worth.
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Arbitrage is not borrowing. Some Arbitrers do only arbitrage, some Borrowers only borrow - like me, some people do both. A Borrower in Balanced is a role, we cannot discuss if we mix all the roles together.
I agree with the last two paragraphs of your reply, but I am talking only about Borrowers as a role in the system, incentivized with BALN allocation, that will be reduced with this BIP. I disagreed with the point that in Balanced Borrowers do not pay enough for taking loans. They do, as de facto the rebalancing is a hidden variable interest, and rates are comparable to OMM loans in ICX market.
So it is not fair to say that they are privileged and their BALN allocation should be reduced, as they borrow “for free”.
I guess most of us take on different roles while interacting with the platform - Borrowers, Liquidity Providers, Traders, Stakers, Arbitrers etc, but my point adressed only the statement you made about Borrowers.
As it stands, rebalancing sells the collatoral when the DEX price is 5% higher than oracle (CEX) price.
In that same scenario, an arbitrageur will sell on the DEX when the price is 5% high than CEX price.
I will fully admit its not 100% the same, but its arbitrage-like. And when they implement the opposite, rebalancing will also ‘buy’ at a discount, when the DEX price is lower than CEX price.
To me, this is beneficial or at a minimum, drastically reduces the inherent costs.
I will fully agree whatever the effects of rebalancing, its part of the cost, if you view it negatively, its a cost, if you view it positively its a gain, but either should be factored in. I would be happy to see any modeling that shows the current effects of rebalancing generate a net cost in excess of the standard interest on money market platforms.
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Unsure of where to post, but I am currently unable to cast a vote on the latest BIP? it says I need to be staking BALN or providing to a liquidity pool which im doing. Any help would be appreciated