The current collateral requirements are 20% LTV (loan to value) to earn rewards and 25% LTV maximum borrow.
I’d like to propose we lower collateral requirements to 35% LTV. This is the same recommended LTV as Anchor Protocol.
Increasing capital efficiency (how much a user can borrow given a certain amount of collateral) makes Balanced both more attractive to borrowers and increases origination fees. Given the recent market drop, this should also spur more originations of bnUSD in the short term.
Removing the rewards threshold is somewhat of a different topic but felt it would be better to discuss here since they are related from a technical perspective. Removing the rewards threshold is in preparation for the ability to give block-by-block rewards.
In order for us to support block-by-block reward payouts (an enhancement we have been researching along with some community members) we must remove this additional logic. All borrowers must be eligible to receive rewards in order to add this functionality.
Definitely agree on this one! It’s time to take the training wheels off and lower the collateral requirement! I think it was great to start with a 20% LTV to limit liquidations as there were a lot of new people to DeFi and people getting used to the Balanced platform. Now that we’re well up and running the majority of users should have a better idea of the risks involved (particularly with how volatile the market has been!) and how to manage their loans.
I like that there’s a reward threshold in place as otherwise people may be tempted into increasing their loan size as a means of increasing their BALN rewards. However, I see the issue regarding block-by-block rewards. I guess people will just need to be extra vigilant in managing their positions (although this should be the case anyway if using DeFi).
I also think that people will be less tempted to increase their loan sizes if the APY for borrowing is less…this is a whole other topic of course but perhaps removal of the reward threshold could be held off until a vote for decreasing the APY for borrowing (and sending this to BALN stakers) is voted on…
This forum is absolutely stunning btw…incredible work!!
I think lowering the collateral requirement to 35% makes sense, especially considering how well the community has done managing their positions so far. Since there is still a significant margin, I don’t expect there to be any issues from such a change.
As far as the reward threshold, I’m all for this as well. While I understand and support the original idea behind this, I think the benefits of removing it outweigh the incentive to keep your loan at a safer option. Ultimately this should be up to each user to manage and decide.
I did see/hear that there was also consideration for lowering the loan rewards as well, which I think is a positive change too.
These discussions are great and add value to the network overall. I agree we should remove the reward threshold as users should understand the risks using this platform and I believe it’ll be better in the long run.
Ya, the proposal is great, definitely agree. It can’t continue to incentive borrow pool as doesnot make any sence by giving reward with money borrow. it not common. Lower requirement to 35% LTV and eventually to reduce or remove the reward to borrower is the right path to success.
Suggest to allocate the reward instead to BALN stakers
Thanks for putting up the first discussion @benny_options!
I support reduce the collateral requirements. 35%, which is in line with Anchor, is a good place to start.
Regarding the reward threshold, I think this would be a good chance to completely remove BALN rewards for taking out loans – so get rid of the reward threshold plus rewards. Compared to other DeFi platforms which have non-zero interest rates to borrow, Balanced provides a platform with 0% interest.
Combined with the proposed 35% LTV, this means users will be able to borrow even more money, still with a 0% interest rate. With this added utility, I don’t think BALN rewards for taking out a loan makes sense anymore. Practically speaking, I’ve seen people take out loans and do nothing with it just to farm BALN. I’d like to see a model that incentivizes people to do something with the bnUSD beyond farming BALN whether that’s converting to sICX for ICX leverage, transferring to Anchor for savings APY, etc. I think the current model incentivizes people to stay put instead of experimenting and learning (two things that are very important for DeFi at this early stage of adoption).
Perhaps the BALN rewards that are being used for taking out loans can be redirected to BALN stakers instead. Another thought I had was using some of the BALN to reward people to vote. Just thinking of ways to increase governance participation.
Hey Brian - totally agree with your sentiment. I have another proposal in the works that covers both of these topics (removing borrower rewards and additional purpose for staking BALN), just wanted to release gradually.
For anybody that follows after, let’s not comment on rewards allocations just so we can ensure this thread stays focused on whether or not we should increase LTV (and remove the threshold).
-lowering LTV
-Introduce smaller BALN-rewards for taking out loans
-Keep the display of rewards-threshold as it incentivises users to keep an eye on their loan
-reward long-term BALN stakers with a higher portion of the collected fees (according to the duration of their stake)
Great great work, Team! Thanks for your efforts and dedication
I personally wouldn’t want the full removal of rewards from borrowers. We still want to incentivise people from minting bnUSD regardless of how they using it.
Here are some points:
It can be used as a form of advertisement. Who pays you to borrow money? Potentially, it could bring in the next wave of users.
It is true that some people are not doing anything with the bnUSD. That is fine too. But they are more likely to use that or partake in financial activities within the Balanced ecosystem. That is crucial in my opinion.
Reducing rewards threshold is a good step and same for lowering collateral requirements. I feel education is also very important so that is something we can consider so our users manage their assets responsibly. I heard OMM has some videos on it or will have an academy about it. Is there also potentially a way for Balanced to link that?
I am not a fan of removing loan rewards. Perhaps drop it but dont remove it.
There isn’t much to do with bnusd at the moment so forcing it into liquidity pools doesn’t feel right to me.
If rewards get realocated to new liquidity pairs we are just falling into the same traps.
like your point to use as form of advertisement but for very early of balance platform and can’t be forever because multiple incentive already in baln platform like reward for borrower and on top of 0% interest already a very rare incentive in crypto and traditional market. The baln reward obtained by borrower are exploit by selling in platform and doesnot give any benefit to platform as many of borrower just borrow and without using the bnusd.
There are a few things that are a bit unclear to me or not stated in the proposal directly:
The rewards threshold is the min 50 bnUSD borrow to receive rewards for borrowing or the level of LVT required to be under to receive rewards for borrowing (currently between 20-25% LTV). I assumed the former but some posts seem to imply the latter. (Or both? if its a technical thing for giving rewards every block)
This only relevant if its the former for point 1, but if the new LTV is 35% is that the ‘maximum’ LTV or reward TLV.
Regardless, allowing riskier loans sounds good, especially when there are industry standards. Will there be different TLVs for different collateral assets given they have different volatilities? I wonder if a sliding/dynamic ratio would ever work based on historical volatility.
For removing rewards thresholds (whichever form it means) I’m all for it on the basis of block based rewards. Its both fun look at and easy bookeeping. And might also presumably allow the relaxing or removal of locking on LPs?
I’ll still like to see a small amount going into it as I believe the benefits outweighs the cons. A reduced allocation would be very helpful. I believe dumping of BALN rewards will be addressed by @benny_options in another thread regarding the daily BALN allocation.
Yes, agree, smaller allocation will do and eventually remove at all. As more collateral will be introduce i.e. Baln as collateral. This can’t be forever incentive.
It might be way more development work but i would be in favour of offering two modes, a junior and a senior balanced mode (or something similar)
Junior mode:
Collateral requirement stays 20% LTV
Borrower will keep being paid, but the amount of BALN distributed to junior borrowers willl be reduced (it is too much imo now)
Senior mode:
LTV will be changed to 60%
Borrowers won’t get paid for borrowing, but the extra BALN earned by the protocol because of the LTV change will be distributed to Senior BALN stakers
Why:
It increases the utility of BALN-token and still protects users who just entered the defi space (Junior mode should be default imo). Junior mode also makes sure it is easy to earn BALN by borrowing and this means more users will own BALN and that will help build the community
I think it was great to start with a 20% LTV to limit liquidations as there were a lot of new people to DeFi and people getting used to the Balanced platform. Now that we’re well up and running the majority of users should have a better idea of the risks involved (particularly with how volatile the market has been!) and how to manage their loans.