I may be getting something wrong but here it goes:
Rebalancing buys/sells based on bnUSD price
It causes collateral and loan to increase/decrease
Which then increases/decreases the Risk ratio, causing people to get locked.
I understand that the Risk ratio changes according to ICX price, since it’s fundamentally the value of your collateral.
However, it is being changed due to the Rebalancing mechanic.
Example:
15,000 ICX collateral
3,750 bnUSD loan
= ~17.8% LTV
The risk ratio looks like this:
As rebalancing occurs, the collateral value may increase, which then decreases the Risk ratio, which is no problem at all.
The problem is when the Rebalancing increases your loan, so you may end up with ~5000 bnUSD in loan value, which would then reach the “All collateral locked” point, causing a serious problem that the user did not intend to.
So, now it is:
15,000 ICX collateral
5,250 bnUSD loan
= 25% LTV (locked)
Since the LTV can only decrease by reducing the loan, bnUSD would need to go below 1$, in order for Rebalancing to kick in and sell some of your loan.
This would not occur in an environment where bnUSD is in high demand (like what happened in this snapshot).
So what could be done to help users not get locked?
I’d suggest an automated LTV % lock change, ranging from whatever values (say 25% - 35%) that would keep the difference between the lock and the actual LTV, the same.
For example:
Initially the LTV was 17.8% with 7.2% left to be locked.
Now it is 25% due to Rebalancing
LTV lock should be adjusted to 32.2%, so it is still 7.2% left to be locked.
This way, even though the LTV has increased, the user isn’t at risk of getting locked involuntarily.
There may be a flaw in this that I am not seeing, but there’s people out there that know more than I do, perhaps it is possible.