For some reason it was 35% rather than 10%
There’s another thread here discussing returning the remaining ICX after the loan fee is deducted
The difference of 35% and 10% was just given to the DAO. I want to understand how is the amount of up to 10% for the liquidation determined.
As far as I read in the summary of the crash its not up to 10% but just flat 10% penalty fee.
I would be interested in seeing how many wallets did the liquidations, whether its only a few ones that profited from this rebalancing.
It’s “up to” because the market could continue crashing prior to somebody paying off the bad debt.
For example, Imagine there is $500 worth of collateral from liquidations and 400 bnUSD of bad debt. If somebody paid all the bad debt, they could receive 440 worth of collateral, while the rest stays in the Emergency Reserve. That would be 10%. But imagine the market continued to drop and nobody paid the bad debt. Then there would be, perhaps, $410 worth of collateral and 400 bnUSD of bad debt. Then the person that pays the bad debt would only receive a 2.5% bonus.
This mechanism makes no sense. The more urgent it is the higher the bonus should be. Here you get the higher bonus the earlier you liquidate.
Let me just say the aim of balanced should be to keep the number of liquidations as low as possible.
Same goes for the amount so partial liquidations should also be introduced as soon as possible.
Would be establishing a bidding system too complex? We can also wait until we have more adoption and then introduce it.
I respectfully disagree with your logic. The benefit to the protocol is to have bad debt paid off ASAP. As soon as an account is liquidated, there should be a strong incentive to pay off the debt immediately. Balanced institutes a fixed maximum bonus. It can be raised or lowered.
A bidding system has flaws, as seen in the Ethereum ecosystem on MakerDAO. This black-swan event on MakerDAO is a good example. However, this is just my opinion. If you would like to vote to add an auction system, then a vote can be done.
If there are no bids (or only extremely low bids) on the collateral, or users are too scared to bid as they’ll end up loosing while trying to catch a falling knife, all of it is given away for nearly free and bad debt is not even paid off.
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My logic: Lets say at 10% bonus nobdoy wants to liquidate. Then it goes lower to 9%…till we have 1%. It becomes more and more unlikely that somebody is willing to liquidate. This is a wrong correlation.
Bidding system: You say in the case if there are no bids. Then there would be also no one liquidating at 10%. So even in this scenario the bidding system would be better since you can get even a higher bonus than 10%. Such a system would ensure that the penalty fee is as low as possible.
With regards to specifically the liquidation penalty, there is not particular reason lowest is best. If the product does not suit your needs there are other products.
The larger the buffer the safer the platform, the larger the buffer, the lower the amount borrowed (due to people being turned off by the higher liquidation penalty). This is a business decision and just because it could be lower does not mean it should be. If someone would like to table proposals to lower it more, they are free to do so, and the merits for and against shall be discussed and put to vote.
I personally agree 66% was a little bit too safe, but thats what it is, a business decision. You can also call it profiteering if thats what you want, but they are known before opening positions,
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It seems like you are mixing things up. The penalty fee and the ratio when your position is liquidated is not the same.
On the UI there is currently no penalty fee displayed!
Regarding the early liquidation at only 66% I personally wouldnt mind. You are right, it is more secure.
No I don’t think I am, a larger buffer also allows liquidation operations to complete. This is not a CEX with instant execution. This is not a CEX where overt attempts to manipulate price can be frozen. This is not a CEX where you are unable to use a flash loan to swing the prices of things temporarily. Smart contracts literally cannot execute things autonomously, if you figure that out I suggest you start a chain and become very rich. This opens the liqdation process to gamification.
There is a DEX coming up with flash loan capabilities, and given Balanced recent issues with locked collateral I was personally planning on proposing adding flash loan functionality.
The docs state what happens when liquidation occurs and these are accessible without opening a position.
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You definitly mixed up the the liquidation penalty and the ration which triggers the liquidation.
I dont understand the point of your talk about CEX, flashloans and gamifications.
You stating that every user should read the docs before using the platform is just ridicilous. There is no information: Read the “docs” before using the platform. On top of that makes it the platform very easy to initiate a loan.