Background
The Emergency Reserve Fund was put in place to handle for edge cases, but right now I’d say it’s accumulating a bit more funding than necessary. Here is the purpose statement from the WP
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.
At time of writing, bnUSD has over 5.5x value backing it (stats.balanced.network). There’s ~100M in collateral for loans and ~17M bnUSD of debt.
Having said that, the Emergency Reserve Fund could be triggered even for just small positions without a catastrophic scenario. It comes up when somebody is liquidated, but their collateral becomes worth less than their debt before liquidation bots can payoff the bad debt.
Example
Imagine Bob has $10 of debt and $18 of collateral. Then ICX price immediately falls by 50%. Maybe Bob is the only guy liquidated, but his collateral is only worth $9 and isn’t enough to payoff his bad debt of $10. In order to get this extra $1, we would use the Emergency Reserve Fund.
Proposal
The Emergency Reserve Fund balance can be found here* using the getBalances API (API #2). At time of writing, it’s holding:
sICX: 742,901
BALN: 676,641
The sICX is earned from liquidations, as excess ICX from liquidated positions is sent to the emergency reserve based on the current design.
I’d like to propose we move a decent chunk of sICX and BALN to the DAO Fund simply for better tracking of the funds held by Balanced. I don’t want to anchor the discussion to a specific value, so I’ll just open it up to suggestions of amounts to get things started.
In the end, all of it is controlled by the DAO, but better to have it ready to allocate to other initiatives, such as the Stability Fund, rather than sitting in the Emergency Fund where it’s more difficult to allocate to other projects/initiatives.
*Note - to interpret the numbers from the smart contract API, you need to convert from hexadecimal to decimal using this converter, then divide the number by 10^18