Enhanced Borrower Experience

[benny_options]

I’d like to aggregate a few different ideas from the community into one thread, which will then lead to a series of on-chain proposals that hopefully enhance the borrower experience.

The goal is to increase the number of Borrowers. More borrowers results in less noticeable rebalancing to each individual borrower and is also a core KPI of our platform. It represents a core piece of our user base and a core part of revenue generation, as more people minting, trading and rebalancing bnUSD is good for Balanced. Here’s what I think we should do to enhance the borrower experience and help Balanced at the same time:

• more borrower rewards
• Increase LTV
• lower origination fees
• large stability fund

As all of these are happening, we should also tighten the peg of bnUSD to make it more attractive to trade on our DEX. A tighter peg is justified by a better experience overall for borrowers.

More Borrower Rewards

Here is the thread where it’s getting discussed

Increase Borrower reward 10% -> 15%

Hi all, Due to all the recent action on Balanced (with the Rebalancing and Reverse rebalancing), i suggest increasing the rewards for Borrowers from 10 % → 15%. With the volutile markets and the added stress on monitoring your positions I feel this is warranted. Also the pegging of BNusd close to $1 USD is an essential part of the Balanced platform, drives lot’s of fees and with an increasing number of people as Borrowers the evening out of ‘rebalancing’ per person / position goes down. Late…

Increase LTV

This was already done with BIP15, but we can increase it more. Open to suggestions.

BIP15: Raise LTV to 30%

Discussion BIP15 proposes to increase LTV from 25% to 30% There was somewhat of a black swan event recently. ICX had a double-airdrop snapshot while Binance deposits were suspended. This resulted in the Balanced DEX becoming a large point of ICX selling post-snapshot and a sharp spike in bnUSD price. This triggered reverse-rebalancing heavily to absorb the demand for bnUSD and many borrower positions became locked. BIP15 should ease that pressure on borrowers and allow some to receive access …

Lower Origination Fees

This looks ready to go for an on-chain proposal

Increase origination fee from 0.75% to 1%

Thank you for your input. So would the next best step be changing the rebalancing threshold to 2% from 2.5%? Or would combining that move with a lowering of the origination fee be a good idea ~ as it may trigger more rebalancing. Let us say: Change the rebalancing threshold to 2% from 2.5% and lower the origination fee from 0.75% to 0.6%. How does that sound?

Stability Fund

Already in development, but discussion can be found here.

Use BALN, sICX and bnUSD in the DAO Fund to mitigate rebalancing

I have been brainstorming many ideas on how to mitigate issues related to rebalancing. Here are a few things that are already in process: 1.) Getting bnUSD added to Omm to increase the utility of holding it. Personally I think this will help a lot but we’ll see. 2.) Listing bnUSD against USDT and incentivize it in order to make an easier arbitrage with centralized exchanges 3.) Educating community members on the best way to handle rebalancing, hedge against it, and better messaging around reb…

Tighten Rebalancing Range
This doesn’t have a discussion thread yet but I will make one. It was lightly touched on here.

Increase origination fee from 0.75% to 1%

Thank you for your input. So would the next best step be changing the rebalancing threshold to 2% from 2.5%? Or would combining that move with a lowering of the origination fee be a good idea ~ as it may trigger more rebalancing. Let us say: Change the rebalancing threshold to 2% from 2.5% and lower the origination fee from 0.75% to 0.6%. How does that sound?

[AKN]

Re-balancing itself is the major problem.
It increases your loan automatically or sells your ICX automatically.
It’s not acceptable by a majority of users and since the very beginning thia was raised by the community.
For that reason, many members icluding me are not willing to use the loan feature.

[AKN]

I think you need to add a daily % fee of the borrowers collateral for the loan just like any other site does.

The fee goes to DAO fund.

Re-Balancing based on DAO funds and NOT directly by collateral.

[benny_options]

@AKN

It’s not acceptable by a majority of users and since the very beginning thia was raised by the community.

Happy to have an informed discussion and appreciate the general feedback, but let’s try not to exaggerate so we can make quality decisions. The number of borrowers peaked around 2,500. We now have about 1850. That’s a 25% drop, not a majority, even if you assume 100% of all borrowers that left did so because of rebalancing.

I’d assume a good portion of that is from rebalancing, but even so, there’s many that look beyond the knee-jerk response of adjusted collateral and recognize the benefit of being rebalanced. As illustrated in the rebalancing that occurred today.

Scott Smiley 🌐

@AKN

I think you need to add a daily % fee of the borrowers collateral for the loan just like any other site does.

I just replied to this on a separate thread. I also don’t necessarily see how increasing fees for borrowers (rates are currently 0%) would improve the borrower experience. Right now there’s a small upfront fee and no ongoing interest.

Increase origination fee from 0.75% to 1%

Sorry for letting this slip through the cracks! An ongoing interest rate is possible, but only something I’d want to do in an extreme case. It comes with an entirely new set of issues/considerations. I’m glad you brought it up though so I can give you more background. We’d be managing the bnUSD peg using indirect monetary policy, jacking up interest rates overnight to try to stimulate demand for bnUSD, or setting them to 0 if we need to increase supply. It’s just a very different mechanism fro…

@AKN

Re-Balancing based on DAO funds and NOT directly by collateral.

This was mentioned above in the “Stability Fund” section.

[BBQParty]

Would using the DAO Treasury for Listing bnUSD on a (meaningfull) exchange be a good idea? I know we had a listing but that exchange was… lets not talk about it. ARB bots are much more active there and will happily soak up a price difference of 2%.
Other way could be to let users choose their rebalancing threshold (maybe on 3 lvls) and receive bonus reward over people who have a higher threshold.

[arch]

I like the first 3 measures in general.

Does anyone have numbers of the total volume of rebalancing in general? This would let us guage the impact of this stability fund.

Another thing I hope we could add to the list is that the hard edge of the peg is still a problem. A direct example is the recent large peg diviation caused by someone selling a large amount of sICX into bnUSD. We are ‘lucky’ they did that and rebalancing could pick it up at a good rate. A different and less positive pathway that party could have taken was sell slightly past the rebalance edge, rebalance it back up, sell more, rebalance it back up. A rebalancing threshold that does not take into account time will always have this issue. I don’t think the collateral should be a direct extension of the sICX/bnUSD LP.

[Rabbit]

I was wondering is it possible to add DAO funds to OMM in a decentralized way, with an on chain vote mechanism ? So anyone can put out a proposal to lend a certain amount of DAO funds on OMM, stakers decide and then it is done automatically ?

[NorskKiwi]

Some points that stick out to me and my idea:

• Balanced is about quality UI/UX,
• Some users have been intimidated by and/or not liked the results of re-balancing.
• These same users liked borrowing, but didn’t have (some combination of) knowledge, skill set, willpower, or time to micro manage their position.

I think a cheeky UX solution could be allowing two different loan types. Firstly the one we currently have, secondly a new loan option without re balancing. Newer defi users could choose to keep things simple and give themselves more time to learn and grow.

Now that bnUSD exists in the open market it’s possible to make a new type of smart contract, one that wasn’t possible before Balanced launched. Balanced could let users add sICX as collateral and then issue a bnUSD loan in return. The liquidity for this could come from the Balanced DAO? If the price of ICX dropped and liquidation price was reached then the position would be auto liquidated and bnUSD + profit returned to the DAO.

I don’t think this simpler loan would/should need to earn any BALN network rewards. Taking a loan on a position and still having staking rewards is enough utility on its own to incentivise use.

[AwaxJago]

@NorskKiwi

Balanced is about quality UI/UX

I agree here. Love the experience of using Balanced. I know there are some growing pains at the moment with loading/speed, but I believe things are getting worked on.

@NorskKiwi

Some users have been intimidated by and/or not liked the results of re-balancing.

This always bothered me. So many people were caught off guard by rebalancing — I was silently screaming “it does exactly what it says on the tin!” The crazy part was that borrowers were actively exacerbating the problem by borrowing more bnUSD and buying sICX.

That said, I also get it. Rebalancing was extreme for a while ~ and there wasn’t a clear understanding of how to manage positions.

@NorskKiwi

These same users liked borrowing, but didn’t have (some combination of) knowledge, skill set, willpower, or time to micro manage their position.

I really feel if Optimus opens up more strategies, borrow and supply to OMM, or borrow and supply to sICX/bnUSD for example. Then that could be an enticing entry point for those not wanting to manage their positions.

@NorskKiwi

Balanced could let users add sICX as collateral and then issue a bnUSD loan in return.

Does this not lead us into direct competition with OMM?
Some have mentioned the idea of using bnUSD from the DAO fund and depositing it in OMM, which is sort of the same thing (not something I am a fan of).

The other issue here is that I big honking chunk of sICX collateral is needed to ensure a healthy bnUSD peg. If people start moving that collateral to the “risk-less” loan, then the integrity of bnUSD could be compromised — take this last bit with a grain of salt, it’s my simplified understanding.

This does have me thinking though… I’m going to get a cup of coffee and let the ideas percolate.

[AwaxJago]

@NorskKiwi

Now that bnUSD exists in the open market it’s possible to make a new type of smart contract, one that wasn’t possible before Balanced launched. Balanced could let users add sICX as collateral and then issue a bnUSD loan in return. The liquidity for this could come from the Balanced DAO? If the price of ICX dropped and liquidation price was reached then the position would be auto liquidated and bnUSD + profit returned to the DAO.

Bolded ~ I don’t think the DAO could cover this ~ currently, there is just under 800,000 bnUSD in the DAO. So I do not think this is a scalable solution.

This next part I’m doing more as a thought experiment…

For bnUSD to remain healthy, a pool of collateral and bnUSD (or debt creation in bnUSD) needs to be available to positively and negatively rebalance the sICX/bnUSD pool to within the threshold.

For Balance to offer a “rebalancing free” loan, that pool of collateral and bnUSD needs to be supplied by someone else.

There is talk of using a stability fund, and I support that, but we do not know how effective it will be in extreme cases of unidirectional rebalancing (like in October and late December).

One way it could work, in theory, maybe not practically, is to outsource the rebalancing. Or maybe separating the responsibility of maintaining the peg, from the collateral.

Example:

Terry has $1000 value of sICX.

• He “stakes” it to maintain the health of 10% of his collateral in bnUSD loans (100 bnUSD at time of staking).

Jake has $1000 value of sICX.

• He “stakes” it to maintain the health of 20% of his collateral in bnUSD loans (200 bnUSD at time of staking).

When negative rebalancing happens, some of their sICX is sold, and bnUSD is added to their stake.
When positive rebalancing happens, they incurs dept, and sICX is bought and added to their stake.

Their is now 30% of sICX value available to be loaned rebalance-free

Scully has $1000 value of sICX as collateral.

• Takes a loan for 250 bnUSD.
• His collateral is locked and liquidated at specific thresholds.

My first 3 questions are:
1. How much does Scully pay for that loan?
2. How much do Jake and Terry need to be rewarded for maintaining the health of that loan?
3. How do we manage those complicated positions?

Bonus thought: Scully is the only one with bnUSD, and he has zero incentive to keep bnUSD healthy.

[benny_options]

@NorskKiwi

The liquidity for this could come from the Balanced DAO?

This is the primary issue with your suggestion. Overall, of course I’d like to limit rebalancing.

There’s only 800k bnUSD in the DAO Fund as @AwaxJago mentioned, so Balanced could only service 800k bnUSD worth of this type of debt. And we certainly couldn’t allow people to mint bnUSD that wouldn’t be responsible for participating in rebalancing, otherwise everybody would do this and the peg would break.

I did some research on Liquity.org. They have an almost identical mechanism to rebalancing, but it’s more like how rebalancing started with outside arb traders.

They handle it by keeping a sorted list of borrowers, sorted by LTV, then when rebalancing occurs, only the highest LTV position gets rebalanced, potentially their entire position closed, but nobody else gets touched. It becomes the responsibility of borrowers, if they don’t want to be rebalanced, to make sure they’re always in the back of the line. It gives borrowers more control, but makes rebalancing far more painful for the person/people it happens to.

I’m considering the above and will likely start a separate thread on it to discuss, but figured I’d mention it here as well

[arch]

Naively, since that is checkable on-chain, wouldn’t that cause a cascading reduction of LTV as everyone aims to be ‘not most’. The moment you are ‘not most’ you get risk free rewards. Yes at some point it would even out as the rewards got gigantic versus being in front of the queue, but as the rewards are not gigantic now, logic dictates that equilibrium point to be below current collateral levels.

EDIT: This also seems to allow someone that sits on bnUSD to compeltely game the system? Before I think I mentioned people that just sit on bnUSD are good, because they are both pegging bnUSD, and not contributing to it falling, in fact by holding it they are pegging it even more, basically they believe bnUSD is/will stay 1 USD.
But with that system, by dynamically altering their TVL and sitting on bnUSD they can ‘not contribute to peg’. This is epecially true the lower origination is, or they can just not re-enter.

[Phantom]

I would suppose that the liquidation today took many balanced users by surprise.
Many people are not educated or aware of potential risk.
Borrowing is still a central feature of DEFI system and Balanced.
Borrowing carries risk but there are rewards that tend to compensate for taking extra risk, which is the $Baln

My 2% to enhance the experience in borrowing is to stratify the risk into “low risk”, which will carry lower rewards and lower risk for liquidation and “high risk” where the rewards are higher but also the risk for liquidation. People might get to choose

[AwaxJago]

And here we are. This probably isn’t the time, but I wanted to get some ideas down about how we move from here. Ideas to sleep on sort of thing.

Before I dive into a list — big love, kudos, and support to everyone that has been trying to deal with this situation with dignity.

So here are some quick bullet points of things that may need addressing. They might warrant their own discussions, or not.

1. Ideas about communication and Ianguage we use surrounding originating bnUSD:

• Moving away from borrowing and loan; potentially to minting and the responsibility of minters to maintain the peg of the asset created.

2. Do we keep the lock at 67% LTV?(assuming BIP 20 passes)

3. How soon do we start to tighten the peg, do we wait for elastic or asymmetrical options?

4. Seeing the burden of maintaining the peg, and maybe a need to entice minting of bnUSD, do we lower origination fees to 5%, 2.5%?

5. Increase minting rewards? Or maybe revisit what we are rewarding ~ ideas?

6. Increase sICX/bnUSD LP rewards? Is an increase in liquidity, assuming more rewards can attract the capital, helpful?

7. Solution to the hard edge of the peg, does this need addressing

8. Stability fund, is it an imminent possibility?

[AwaxJago]

9. Keeping Liquidation LTV at 85%

From Sir Ken M

I hope the increase in liquidation levels is only temporary sirs. A small margin of a 15% wiggle room is definitely not enough if liquidator bots aren’t triggered quickly enough when the markets decide to go for a freefall like we did back in March 2020 sirs. This puts a huge risk for BalanceDAO of becoming insolvent if it doesn’t have enough funds to cover the bad loans sirs. What’s the end result? Well the end result of BalancedDAO not being able to cover the bad loans is that your bnUSD would be worthless along with BALN sirs. This high-risk approach is how other DEXes collapsed to zero in the past and I truly hope we learned from other DEXes mistakes sirs.

We are literally playing with fire at the moment @benny_options

[Uglyrage]

Exactly the time to be asking these kind of questions if you ask me. I think we can all agree on the following statement:

Both the current liquidation mechanism, and the way to keep the bnUSD peg are liabilities to the stability of bnUSD.

I think last week’s events were necesary to see this clearly. Going forward we need:

1. Safeguard the integrity of bnUSD
2. Protect the position of the backers of bnUSD
3. Safeguard bnUSD is an acceptable stablecoin.

The ordering of this list isn’t accidental

But in my opinion we need to take the following steps in order:

1. Find a liquidation mechanism that protects the platform, and derisks the collateral as much as possible.
   1a. Raise liquidation treshold to a safe level @arch, @Ken_M do you guys have any input what level can be considered safe?
   1b. move to partial liquidation, to lower the footprint of liquidations as much as possible
2. Revisit the rebalancing mechanism. Especially protect it from feedback loops
   2a. I think @arch hit the nail in the head here with time maximised rebalancing. For this takes pressure away from the collateral pool, and gives arbitrage time to do its job.
   2b. An asymmetric peg should help a ton as well. Since we have experienced that the peg breaking down is annoying for borrowers, the peg breaking up is lethal.
3. With proper mechanics in place we can work on tighthening the peg again. With both steps from 2. in place, even 0% tolerance should be doable imo.

I hope this makes sense. As allways, i am very curious what you guys think of this.