We will not have meaningful discourse if that is the point at which we start.
There was no runaway feedback loop, and if there was it certainly was not engineered by some party looking to seek profits from liquidations, if for nothing else, as this thread and your proposal suggest, most of any difference sits in the DAO.
From day 1, and as outlined by the very product of bnUSD, it has always been possible to liquidate the entire collateral. All you need to to sell enough ICX. You can do that today, you can do that during the crash you can do that in the future. The reason thats not profitable is it involves selling a lot ICX at a loss, and holding a ton of the currency you just destabilised.
But what else is like someone selling a crap ton of ICX, thats right, panic in a downturn.
Here I want to expand on some thoughts about how ‘rebalancing is the cause of these liquidations’
No rebalancing would not have been different from borrowing a stable with a small mcap
Imagine traditional leverage, on a CEX, you deposit ICX, borrow another stable. They actually assess your LTV on the USD value on both sides, however because most stables are very stable, this doesn’t vary much. However in the event USDT went to 1.10, as someone borrowing USDT, hence short USDT, that represents your position worsening, and could be liquidated just from USDT rising.
Any platform that doesn’t do that opens itself to liability and bad debt.
Now lets be 100% frank, bnUSD is not even in the same universe as the big stablecoins, with that kind of sell off and sort of small mcap and isolated enviroment, bnUSD price would have gone haywire. This increase in bnUSD price would be equivilent to the amount purchased via rebalancing.
The reason Balanced doesn’t evaluate your loan on the price of bnUSD is because it knows and itself enforces the value of bnUSD… via rebalancing. However if like now, its not really doing that, the actual risk to the position of the DAO is actually quite high. It LOOKS like the DAO is still currently taking 15% on liquidations, but thats only if bnUSD comes back to 1USD. If for some reason it sits at 1.10 or 1.12 for long periods of time, the ‘fee’ is almost zero, because yes, its not a fee, its a buffer to protect the peg.
There are in fact minor differences, but if the platform was instead evaluating debt via the DEX price of bnUSD instead of doing rebalancing and adding to positions, you would largely end up with the same % of LTV and get liquidated at about the same values.
The other half of what looks like ‘a feedback loop’ is, is plain and simple a long squeeze. When something used as collateral falls (and for a pair, when the price of the thing you borrowed increases) it causes mass buying… of the thing that is increasing in price(bnUSD), Which again, for bnUSD instead of increasing its price, manifests as increasing your position, INSTEAD. This point looks a lot like rebalancing is at fault but again lets remember. Balanced assesses your debt based on the oracle USD price of ICX instead of just the DEX sICX/bnUSD price, it KNOWS it can do this, BECAUSE of rebalancing. If there was no rebalancing, there would be no way to gurantee this relationship, and it would need to assess bnUSD on the price it has, which would impact the borrowers position in the same way, via the high price of bnUSD.
We must, look to even the largest and most successful stable coins, they are NOT 1USD during periods of extreme volatility, so pretending your debt hasnt increased when the stable you borrowed is in scare supply and rising in price is not a solution, and in fact opens the platform to very high risk.
TLDR: If bnUSD was just a small cap stablecoin pegged by USD, the liquidations would have been very likely to happen anyway. The key factors are not rebalancing but
- Large market sell off
- Long squeeze
- Tiny stablecoin market cap (far far smaller than the thing its trading against ICX)