Recent Liquidations & building goodwill

Proposal Discussion WIP: DFP
#138

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

  1. Large market sell off
  2. Long squeeze
  3. Tiny stablecoin market cap (far far smaller than the thing its trading against ICX)
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Rebalancing Mechanism Enhancements
#139

With all due respect, I would like to make a few points.

  1. I fail to see how the language you have cited shows bad sentiment toward the platform. Rather, it shows sentiment toward the event that occured. This was, afterall, known as a black swan event, which implies unexpected and severe consequences. Yes, the platform performed 100% as coded to keep everything running, but the outcome was still unexpected and undesirable for almost anyone with a loan.

  1. This does not sound like a swipe at the platform to me, but rather a productive discussion that needs to happen. Whether it needs to be in the proposal or not is of course debatable, but I see no harm in having productive discussions to better the platform. I believe everyone wants to build toward a future were this type of scenario does not occur again. Having this in and of itself also infers that the affected parties will in fact still want to use Balanced and make it the best platform that it can possibly be.

  2. You are correct in the valuation of those who saved their position at this moment, but they still are afforded the option of whether to do that or not. I myself ended with a position of about 90,000 ICX, after putting in 16,000 USD to try to save my position, but it was all for naught. If 1/3 of my position was returned, I would barely get a little over that in valuation. I can honestly say with 100% certainty, that I would rather be in the current position of having 66% LTV but still having 90,000 ICX.

The proposal itself is the act of goodwill. We all know what has been said on the forums and twitter and social media, some of it professional, and some of it far less so. People are hurt, and I believe rightfully so. Some blame the platform and some don’t. Some take responsibility and some don’t. Regardless of this it is the unexpected event that occurred that has created these sentiments. These are real people with real lives and livelihoods at stake, and the event that occured has severely impacted us all. We are hurt, and pleading. The proposal is to fix this hurt. This is goodwill.

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#140

First of all I absolutely sympathise with the situation and wouldn’t wish it upon anyone. But something that I think is missing is, someone that still has their position had they started from the same point, wouldn’t have those numbers. They would have put in maybe 20k, 30k,40k retained the position with even more debt and more bought ICX via rebalancing, which fell more, and now would need to close their position to eliminate risk at a currently 7-8% premium on top of that. And they would have done all that… to avoid the exact 33% liquidation penalty we are talking about right now. The non-liquidated people were not immune to that liquidation level, they suffered through it all the same.

No doubt many sold off other assets at a loss for their position.

Something liquidations do is prevent more losses from falling, and of course even within that 4 day period, lets say theres someone that got liquidated at the start, didn’t absorb more rebalancing over those 4 days, and they get this refund. Their position is totally different from someone liquidated at the end, they propped up their position day by day, it fell more, and then just before the new proposals go through, they get liqudiated.

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#141

Have you guys actually looked at the data? Most people would’ve gotten liquidated anyways. Over 70% of the addresses liquidated had a liquidation price over 0.60 pre reverse rebalancing.
We’re just promoting over-leveraging and bad borrower habits.

#143

I think we will never agree 100%. That’s why we need to vote on it. Suggestion by @particleX is the best I have seen so far given the overall circumstances. I don’t think it’s too much to give as many suffered a loss anyways (referring to earlier stated arguments) and most of the funds that get refunded is basically the liquidated’s funds plus a little compensation for the error you could say so it’s basically just giving it back to them. That’s how I see it.

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#144

Thought I’d share my thoughts on this here. First, I would like to say that a liquidation event is difficult emotionally and psychologically, and I truly sympathize with all those who got affected. I wish it never happened :frowning_face:

In general, I must agree with @arch that this proposal fails to fairly distinguish between the different users who were liquidated at different times and those who managed to survive and still hold debt. I also agree that it’s unfair to blame rebalancing for the liquidations, but rather a combination of simultaneous factors, the most important of which is bad risk management. In fact, strictly in terms of rebalancing, it has had a net favorable impact on my position over Balanced’s entire history.

It is important to note the following which was true before the cascade event:

  1. The lock was at 25% LTV

  2. The daily borrower rewards were around 40% to 60% more than the specified amount (meaning that a good number of positions were already outside of the reward threshold).

  3. Here it is important to note that while the lock was set to 25% LTV, the reward threshold was still set at 35% LTV.

Point 3 is significant because some people kept their risk below 35% but above 25% because they were still being rewarded despite being locked.

Combining points 1 and 2 above means that there were many accounts above 35% LTV to begin with for an extended period of time.

All that said, Balanced is a very promising platform, but it is still new. As a community we learn from our collective experiences and endeavor to continuously improve the Balanced experience to be as safe and reliable as possible for its users without compromising the platform itself. Already many changes have taken place and many more are being discussed to mitigate future risk should similar events happen. This is the correct focus and where our time and effort should be spent.

Refunding the liquidated amounts should not be Balanced’s priority, and I would generally be against the idea altogether. However, I would support some measure of relief payout for those affected as long as some of the points @arch mentioned are addressed.
Things to consider:

  • A capped payout per account as a gesture of good faith from the BALANCED DAO.
  • This payout can be proportional to the initial size of the position before the cascade event and not exceeding the cap.
  • And no payout to the accounts that were already above a certain LTV threshold to begin with (35% given that it was the reward threshold for example).
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#145

18% is too little in my opinion, because we got liquidated nearly 40% more than what was necessary to pay off the loans. @particleX seems to have the most support and after taking all into consideration I believe his proposal should take it to the votes. Like I have pointed out before, and what @Richard says, most of the DAO fund is the very money of the affected ones that day of the market crash. How can you support only giving a portion of it back when the circumstances were as they were? Everything should be given back to them plus a little compensation for loss of opportunity cost as argued earlier, as most of us would have acted differently and more profitable if the system worked as normal. Most of us had good risk management but lost our funds unexpectedly due to error in the system, and those with higher liq price got struck by a large penalty fee.

I will still support the proposal of @particleX. If it ever was an emergency situation, that situation we just had. Hence, why even argue to use it for other things? It’s literally meant for emergencies, not for marketing or growing the platform. This is an important point. The fund as I see it is meant for situations like these and to compensate our users as much as possible so that they know they are protected to some extent when using this platform. Funds went from the liquidated to the DAO emergency fund, now it’s merely a question about rotating it back to them. It’s not a big gesture at all as I see it, it’s what should be done. I think this recent event was a test for our platform, and now is the first time we should spend the DAO emergency fund to help out for the emergency.

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#146

Sounds like the best option for the ecosystem. Like @Bot123456789 says, the ICX will find their way back.

I will vote.

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#147

Some even moved funds from elsewhere to Balanced to bring back the liq price and still got liquidated because of the big reverse rebalancing. If you guys saw it with your own eyes, you would have known. So they lost extra funds from other investments too. This is only an example. Other people lost in other ways. Overall, people lost a lot of money that day, hence the big participation in this forum. They should be given back a good compensation. In earlier liquidations, the platform worked as normal. If we don’t use the DAO emergency fund to help out ourselves, I can’t see where this platform is going in the future. I know for a fact that I funded the DAO emergency fund with 10’s of thousands of dollars that day, because my loan was considerably lower. DAO emergency fund should be used for this only emergency we have ever had in the history of this platform. I could even argue that if it’s really meant for emergenices, the fund could be used in its entirety to compensate the affected ones in the emergency. However, for a compromise I believe we can go for @particleX proposal where still a good portion of sICX is left in the DAO emergency fund. But think of this, if it’s a new emergency, the DAO emergency fund will be greatly funded again by new liquidated people. We should always help out the people in the emergency. That’s my thoroughly thought through opinion.

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#148

When you first see this argument, you can’t unsee it. I fully agree 100%! It’s no question in my opinion.

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#149

Let DAO emergency fund be used for emergencies :+1:

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#150

Correct, I’m an example myself → Added 20k to my collateral day before liquidation, still got liquidated. Like I told before, my confidence will always have a dent because of this event.

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#151

No, I haven’t. I would love to see the data. Learning a new skill set to gather, represent, and analyze the data is beyond my available energy at the moment though.

Is 18% the actual difference between being liquidated on Jan. 24th and Jan. 25th?

Keep in mind, if this is your preferred outcome, then someone has to make a proposal for you to be able to support it.

Around 65% I believe.

It does have a well thought out purpose, with a clear use case. There is even definitions of terms and examples. This current situation does not seem to reach that threshold. I’m not saying I’m opposed to the use of the funds, but I am opposed to pretending this is what the fund is for.

Emergency reserve fund

In extreme circumstances where the value of bad debt of a particular pegged asset is greater than the value of the forced liquidation pool, an emergency reserve fund will be made available for outside traders to be compensated for paying off bad debt. 5% of Balance Tokens mined on a daily basis are sent to the emergency reserve fund, along with leftover collateral from liquidations.

#152

Yes it is if my math is not wrong.

#153

It will be a long time before we see an emergency like this for a number of reasons. The penalty fee was way too high, the collateral got locked early on making it impossible to pay down debt, massive reverse rebalancing giving forced loans bringing the liq price up in the crash (not a great combo), people having to sell other assets at the bottom from elsewhere at a loss to cover their debt and still getting liquidated. So many factors. They were basically trapped no matter what they did. @particleX proposal is the only fair solution for this emergency the more and more I think about it. Let the emergency fund be used for the emergency.

The question we need to ask ourselves is if the emergency fund is not used for this emergency, then what is it going be used for? It will stay in the fund and not help out the people it really should help out. You won’t find a bigger emergency in a while as there were so many factors leading people to lose everything. For the most part, the money of the liquidated is what the emergency fund consists of, so it should really go to them to cover for their crisis at this platform.

2 Likes
#154

My suggestion is as follows. The liquidated parties will be reimbursed up to 50% of their holdings before the crash. The way I propose is this:
Community members are asked to donate what they feel like, and are given a one week window.
The DAO then matches the resulting final tally 1:1, until we reach 50% of what was liquidated.
In case community members donate more than half of that 50%, the DAO will pay out less. In the reverse case, the DAO will pick up the slack.
Personally, I feel this will test whether the community is on board, a kind of put your money where your mouth is, and it will foster community spirit, since it involves the community in a search and rescue.

1 Like
#155

Hi Arch. I completely agree with your points and created a new topic with some suggestions:

Sorry if it’s written a little poorly. Perhaps someone can word things better or come up with a better structure. I just think it’s completely unfair if liquidated users came out better than people who managed their debt and suffered a massive loss from liquidating their assets and very low prices

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#156

Overall, people will not profit from @particleX proposal. They wouldn’t choose this outcome before the liquidation event. If we keep looking for a bigger emergency to spend the emergency fund on, we won’t find it.

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#157

Title: bnUSD Support Appreciation Proposal

Eligibility to claim sICX: ALL borrowers between Jan20th and Jan 24th 2022

Amount of sICX to use: 30% of Emergency Reserve fund and 5% of the BALN from the DAO fund (EDIT: Change BALN allocation to 15% of BALN in emergncy fund for easier distribution)

First let me describe the mechanics:
Across the volatility period, every debt position evaluated every hour/few hours and summed, and the full appreciation amount divded fully between them pro-rata.

Yes this means people holding their position fully through the period get more share than liquidated accounts.
As a modifier in light of the topic at hand, if an account is liquidated their score counts 1.5x.

Key points:

  • Whatever conditions were true for any parties liquidated, were true for parties not liqudiated, except non-liquidated parties were under those conditions longer. If any argument can be made about the borrower parameters being flawed, and that’s not what I’m saying, but if any arguments can be made, non-liquidated parties were under them for longer, and kept bnUSD stable for longer.
  • Amount is not related to liquidations, all borrowers pitched in, and this is 100% a goodwill measure, Balanced values its minters for their service in stabilising bnUSD.
  • In accordance with it being a goodwill measure, the DAO should chip in, and via BALN representing the belief that people which stabilised their risk across that volatility, and are still in today, are longer term members of the community.
  • Some parties might get more than they lost, many will get less. This is about appreciation of services rendered to Balanced.

Very happy to tweak values but the pillars I feel are important

  • This is not a refund/compensation/return
  • This is an appreciation of bnUSD stabilisers that helped Balanced through a rough spot, and gave it space to improve.
  • Some amount of BALN from the DAO seems appropriate.

Disclosure: I have maintained a borrower position through the entire proposed period.

I believe this is a more comprehensive and equitable way of fostering goodwill.

13 Likes
Liquidation event refund to account for both parties
Liquidation event refund to account for both parties
Proposal Aggregator [No Comments]
#158

Simon,

While i dont think last days event should be classified as an emergency at a protocol level. And reimbursement of any funds is mandatory, required or even a good idea to begin with. Your take is the most sensible i have seen to date.

While from a technical standpoint i strongly feel the best course of action would be to do nothing. I do sympathise that nobody had anticipated the effects of the protocol working as intended, and it could potentially leave a bad taste for alot of borrowers. Maybe even going as far as denting the Balanced userbase (something we can all agree on, isn’t what we want to achieve).

A proposal to redirect part of the Emergency fund towards a goodwill gesture for borrowers, which leaves the emergency fund strong enough to function as intended in an actual emergency as stated in its goals.
In that goodwill gesture, all borrowers should be considered, not just those who have been liquidated.

@Andy’s post: Liquidation Fee Discussion - #144 by Andy appears to share the same spirit…

A proposal that takes those things into account… That i could get behind.

Cheers for the input!

Maybe you should be the one to put it forward in proposal format as put forward by @particleX here: Liquidation Fee Discussion - #119 by particleX

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