Rebalancing threshold discussion

Creating this thread to post comments related to BIP8 and rebalancing threshold in general

@vratix posted this on BIP8 initially but there is no discussion on BIP threads

@bwhli I’m all for tightening the peg and getting bnUSD to be a more reliable stablecoin, but I’m concerned about the impact on the existing users and how this will affect them in the short term. This is due to the recent uptick in rebalancing activity which seems to have again had a significant amount of collateral sell off. With this occurring and with ICON 2.0 /ICE airdrop imminent and people trying to accumulate ICX, do you still think this is the right path to implement now? Note I have voted for this BIP, but I’d like to discuss the timing of the implementation of this. Especially for us to take what @benny_options advised around the reasons for the recent rebalancing uptick since OMM was launched. Specifically since there is an initiative in development to help rebalancing overall (see Balanced roadmap update) and the fact that not having bnUSD on OMM is creating a lot of rebalancing pressure (as per Benny), does it make sense to wait on this until those things are implemented?

@vratix Thanks for starting the discussion. Few points below, please let me know your thoughts.

  • I think it’s important to always approach DeFi with a strategy. If people are accumulating ICX for the ICE airdrop and that is their top priority, they should reduce risk as much as possible by paying back the loan – that way rebalancing would be a non-issue. If someone wants to accumulate as much ICX as possible and voluntary takes out a loan that they know may be rebalanced if bnUSD hits a certain price, that’s a risk they would have to assess. In other words, I don’t think we should be making decisions on bnUSD peg based on an upcoming airdrop. If we do choose to prioritize ICE airdrop, then the logical thing to do would be to disable the rebalancing mechanism fully, which is obviously dangerous. Regarding the airdrop though, rebalancing always sells sICX at a premium, so if someone is really intent on accumulating as much ICX as possible, rebalancing is actually favorable.
  • Regarding Omm listing, I think it’s sort of a chicken/egg problem at the moment. bnUSD won’t be listed on Omm until it achieves a more stable peg, so it’s not really something we can just wait for. That’s why I’ve been pushing the peg adjustments so hard. I really do think adding bnUSD to Omm will give it more potential to earn yield, which in turn should reduce rebalancing. But to get there, we first need to tighten the peg to prevent LTV from fluctuating so much for Omm borrowers.
  • Based on my observations, the move from 3% to 2.5% probably won’t reduce rebalancing that much. If we really want to relieve rebalancing pressure, moving the threshold back to 5% would be more suitable, but that feels like a step in the wrong direction to me.

Just proceed, all your points above are correct. People now fomo on ICE airdrop. They will selling anything into ICX for the ICE drop which is fair.

Thanks, your points all make sense and I saw your discord discussion on this after I posted. I didn’t think about the OMM chicken and the egg angle and just assumed it was going to be implemented sometime after icon 2.0 dropped. I appreciate your response.