Rebalancing mechanisms

Ola guys,

I want to weigh in on the amount of rebalancing going on currently. I know a lot of us see it as a negative, others don’t. What we can all agree on, if the peg breaks to the downside, there’s too much bnUSD and not enough demand. Vice versa if the peg breaks to the upside. At the moment rebalancing is the only mechanism to bring bnUSD back to peg.

While I don’t think rebalancing is a negative (or a positive) per se. I believe the main problem with it is that it takes away people’s control of their money.

I want to propose less than ideal fixes.

  1. Flexible origination fees (where the minting of bnUSD becomes more expensive when the peg is low, and cheaper when the peg is high). Therefore better reflecting market conditions.
  2. Incentivise people to pay back their loan when the peg is low (maybe funded by the extra fees from 1.)
  3. Utisilise part of the DAO fund to cushion rebalancing.

I believe these could reduce the amount of involuntary rebalancing until bnUSD gains more utility.

Just wonder if add more collateral such as USD stable coin to the rebalance mechanism, since stable coin will pay off the loan.

I had originally suggested lowering origination fees during times of rebalancing but this is actually counter productive. Thinking from a macro-economic standpoint, rebalancing occurs because there is too much supply of bnUSD. bnUSD needs to be removed from the sICX / bnUSD pool and burned.

Therefore, making it cheaper to mint bnUSD only adds to the problem.

This will only make rebalancing considerably worse for people that opt-in. I’d prefer to think of alternative options, but taking away BALN rewards and perhaps charging higher origination fees for those that opt-out could be a way to even this out. I’m open to it, but would like to keep thinking it through.

My current leading idea is to use the DAO Fund to help manage the peg as well. Specifically:

If bnUSD is under $1:

  • The rebalance method would be changed to first check to see if the DAO Fund is holding any sICX
  • If yes, it would sell the DAO Fund’s sICX for bnUSD until the peg is within range

If bnUSD is above $1:

  • The rebalance method would be changed to first check to see if the DAO Fund is holding any bnUSD
  • If yes, it would use the DAO Fund’s bnUSD to purchase sICX until the peg is within range

Overall I would be happy with this solution and it’s not all the difficult to implement, but unfortunately it’s just not all that impactful either. The DAO Fund only has ~200k sICX currently, so it could only provide so much buffer

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I can understand why people feel like rebalancing is taking away control, but I think it’s important to acknowledge that once someone sends ICX from their personal wallet to a contract address, that in itself is giving away control. So if someone understands Balanced and deposits ICX anyway, I have a hard time seeing the situation in a negative light – but that’s just me.

I think @benny_options DAO fund idea is probably the best solution at this time. While the voluntary rebalancing is an interesting idea, my gut feeling is that it will introduce too many complexities. At this point, many Balanced users still don’t really understand the purpose of rebalancing. I’m afraid if we had another layer on top of that, it’ll get even more confusing for users.

I think the DAO fund is a good idea because it’s a simple solution that buys us time. Buying time is important because we don’t know what the effects of a tighter bnUSD peg will be on rebalancing, and we need time to collect data and see that play out. Tightening the peg and buying some time also allows us to expand the use cases for bnuSD, which will hopefully push the value closer to $1 over time as well.

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I think i haven’t been clear enough. With flexible origination fees, i ment for minting bnUSD to be more expensive when the peg breaks to the downside, and to be cheaper when the peg breaks to the upside, thereby taking a first step to balance supply and demand. (Yes, this would make rebalancing being perceived as even worse) (and yes, this is allready true, but maybe not visible enough?).

Also, reading telegram and discord, there are people who found ways to make money of off rebalancing (good for them). I would propose adding a button to the UI saying pay of your loan for a bonus now whenever the peg is low. (maybe even incentivised from the extra origination fee). Maybe even include a calculation of their profits.

Both mechanisms should help to stabilise the peg before forced rebalancing occurs (thereby lowering the frequency).
I dont know how many bnUSD is minted when the peg is low @bwhli maybe you could help there?

basicly, when the peg is low, we want to encourage people to pay of the loans, and when the peg is high, we want to encourage them to take out additional loan.

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I’m totally with you here… Fact remains, alot of investors experience the rebalancing as a wet blanket.

This is a point i haven’t fully considered, but you’re probably right. Thankfully the amazing crew over @PARROT9, are pro’s at making complex mechanisms easy to grasp.

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Utilising the DAO fund for keeping the peg is an option that needs to be considered for sure (i will update the first post, and add the option there for clarity).

I see 3 drawbacks:

  1. I believe the DAO fund isn’t big enough to soak up all rebalancing if we dont fix underlying principles (for example, last month the peg has allways been broken to the downside, so at some point the DAO is out of bnUSD, and cannot function as a cushion anymore).
  2. I dont fully grasp the effects of this on the DAO fund. Where the trade itself appears profitable (buy and sell sICX at a premium / discount). It also means the DAO fund takes a long position on sICX in a market downturn (sell all bnUSD for sICX), and a short position in a market uptrend (sell all bnUSD for sICX). That defeats the point of a diversified DAO fund imo.
  3. It takes a profit strategy away from users.

@benny_options I think it falls far outside of the mandate of the DAO fund to be an active investor in both bnUSD and sICX. Especially taking into account that the mechanism would go 100% both ways. I guess it warrants a vote on how much a percentage of the DAO fund can & should be utilized for bnUSD stabilisation?

@bwhli @benny_options

It will not make sense when more pairs are added for collateralisation… Imagine if one of the cryptocurrency died out and go down to 0. It can potentially drain out a huge amount of funds thats gained from that pair.

I disagree with the train of thought of using DAO funds for rebalancing.

I think its more important to understand how and why did the peg go off so significantly. I doubt this would solve the root of the problem.

If the reason is because there isnt enough arbitrators, a better use of these funds is to fund the development of bots to allow better arbitraging opportunities. And this could also mean arbitrage via BTP / Equality.
Or build better SDKs so other developing teams / projects will trade against it to make a profit.

Trying to solve it like this is too short-sighted.

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can any one try simulate the worst scenario of using dao fund. may be a SWOT analysis require for that. i agree a bit risky using DAO fund for that imagine suddenly market big volatile.

Thanks for clarifying about origination fees and your idea does make sense from an economic perspective, but I do think this further hurts the psychological issue we’re experiencing with rebalancing.

Currently in development

Correct - you nailed it here.

100% - it’s more of a buffer

This isn’t the case. DAO Fund as a buffer would still allow traders to make money on rebalancing

Perhaps we have differing ideas on the mandate of the DAO Fund but imo it can be used for anything that helps Balanced. Keeping a stable peg and keeping users as happy as possible is certainly helpful to Balanced.

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Rebalancing can only occur on assets that are added as collateral types. If an asset that is collateral is dropping to 0, all users will be liquidated and rebalancing on that collateral type would stop.

Why not both? I feel that allowing the DAO Fund to support the peg is a solid use case of it. It would hold sICX, bnUSD, BALN and potentially other assets as it diversifies and participates in rebalancing for different collateral types.

As for why it keeps happening, certainly we should explore that too. I believe OMM played a role in this, as bnUSD and BALN are both not supported. This made bnUSD economically less valuable, especially within our closed ecosystem. As we add more assets and get added to OMM, this will help with stability. With more stability, DAO Fund would be used less, but still provide a buffer for when it does happen

Would be good to have more transparency around the rebalancing events too. At the moment can only see by day/week/month, so it’s hard to understand when your ICX is being sold (and at what price), which makes it hard to compensate.

Personally makes me nervous that if I’m not watching closely, all my ICX will be sold low and bought high.

Check out the MetrICX app on App Store and Google Play Store, it’ll alert you whenever a rebalance happens.


Just so everybody is clear, rebalancing can’t take more collateral than debt you have. If you have 100 bnUSD of debt, the most collateral that could be sold would be $100 of ICX. And that is EXTREMELY unlikely, because if 100% of your debt is paid off through rebalancing, that means 100% of bnUSD supply has been redeemed, meaning there is 0 bnUSD supply.

If you have 100 bnUSD debt, and 50bnUSD gets repaid, that’s also extremely unlikely. That means that 50% of all bnUSD has been burned through rebalancing mechanism.

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To open this thread up again, I’ve been thinking a lot about the rebalancing mechanism and what can be done. Here are a few ideas I’ve run through:

1.) Could we innovate on how AMM’s price assets using an oracle as an anchor? This way, sICX/bnUSD would always have a bid/offer based on the current market price of ICX rather than the ratio of assets in the pool. Unfortunately this idea doesn’t work too well, as it stops people from naturally bringing the ratio back to what it should be

2.) Could we somehow use BALN to keep the peg similar to LUNA and UST? Still thinking this one through. I believe there is some potential here but definitely a huge change

3.) Could we adjust the messaging about what Balanced is as a product, adjust the UI, urge people to hedge their debt positions in the sICX/bnUSD pool, etc. along with continued adoption of bnUSD and other trading venues? Many people are frustrated with rebalancing because they come here looking for a loan, and find something different. I’m leaning toward more accurate messaging about how Balanced works and a UX to go with it.

4.) Could we use a portion of the DAO Fund and set it aside for a Stability Fund? Yes, I think we could. It may not have a huge impact but it does provide a buffer.

Overall I’m leaning toward a combination of both 3 and 4. If anybody has other thoughts, let me know

I like number 2

I personally think remessaging Balanced like Number 3 is not the right move, this contradicts its real goal - don’t lose your staking rewards and borrow off your assets.

Currently staking rewards are pointless given the amount of rebalancing happening, and i just don’t see mainstream adoption happening this way.

Hedging or any extra step needed to counteract the rebalancing impacts hinders all the great ui/usability improvements this platform has.

I am keen to get a deepdive of option 2!

Also in the interim, could we make a small ui tweak?

if we could add a clear button, so after a user manual purchases their SICX thats been rebalanced they can hit clear and rebalancing stats move to 0, this way they know what they have bought back vs how much more has been rebalanced in the same day.