Thought I’d share my thoughts on this here. First, I would like to say that a liquidation event is difficult emotionally and psychologically, and I truly sympathize with all those who got affected. I wish it never happened
In general, I must agree with @arch that this proposal fails to fairly distinguish between the different users who were liquidated at different times and those who managed to survive and still hold debt. I also agree that it’s unfair to blame rebalancing for the liquidations, but rather a combination of simultaneous factors, the most important of which is bad risk management. In fact, strictly in terms of rebalancing, it has had a net favorable impact on my position over Balanced’s entire history.
It is important to note the following which was true before the cascade event:
The lock was at 25% LTV
The daily borrower rewards were around 40% to 60% more than the specified amount (meaning that a good number of positions were already outside of the reward threshold).
Here it is important to note that while the lock was set to 25% LTV, the reward threshold was still set at 35% LTV.
Point 3 is significant because some people kept their risk below 35% but above 25% because they were still being rewarded despite being locked.
Combining points 1 and 2 above means that there were many accounts above 35% LTV to begin with for an extended period of time.
All that said, Balanced is a very promising platform, but it is still new. As a community we learn from our collective experiences and endeavor to continuously improve the Balanced experience to be as safe and reliable as possible for its users without compromising the platform itself. Already many changes have taken place and many more are being discussed to mitigate future risk should similar events happen. This is the correct focus and where our time and effort should be spent.
Refunding the liquidated amounts should not be Balanced’s priority, and I would generally be against the idea altogether. However, I would support some measure of relief payout for those affected as long as some of the points @arch mentioned are addressed.
Things to consider:
A capped payout per account as a gesture of good faith from the BALANCED DAO.
This payout can be proportional to the initial size of the position before the cascade event and not exceeding the cap.
And no payout to the accounts that were already above a certain LTV threshold to begin with (35% given that it was the reward threshold for example).
18% is too little in my opinion, because we got liquidated nearly 40% more than what was necessary to pay off the loans. @particleX seems to have the most support and after taking all into consideration I believe his proposal should take it to the votes. Like I have pointed out before, and what @Richard says, most of the DAO fund is the very money of the affected ones that day of the market crash. How can you support only giving a portion of it back when the circumstances were as they were? Everything should be given back to them plus a little compensation for loss of opportunity cost as argued earlier, as most of us would have acted differently and more profitable if the system worked as normal. Most of us had good risk management but lost our funds unexpectedly due to error in the system, and those with higher liq price got struck by a large penalty fee.
I will still support the proposal of @particleX. If it ever was an emergency situation, that situation we just had. Hence, why even argue to use it for other things? It’s literally meant for emergencies, not for marketing or growing the platform. This is an important point. The fund as I see it is meant for situations like these and to compensate our users as much as possible so that they know they are protected to some extent when using this platform. Funds went from the liquidated to the DAO emergency fund, now it’s merely a question about rotating it back to them. It’s not a big gesture at all as I see it, it’s what should be done. I think this recent event was a test for our platform, and now is the first time we should spend the DAO emergency fund to help out for the emergency.
Some even moved funds from elsewhere to Balanced to bring back the liq price and still got liquidated because of the big reverse rebalancing. If you guys saw it with your own eyes, you would have known. So they lost extra funds from other investments too. This is only an example. Other people lost in other ways. Overall, people lost a lot of money that day, hence the big participation in this forum. They should be given back a good compensation. In earlier liquidations, the platform worked as normal. If we don’t use the DAO emergency fund to help out ourselves, I can’t see where this platform is going in the future. I know for a fact that I funded the DAO emergency fund with 10’s of thousands of dollars that day, because my loan was considerably lower. DAO emergency fund should be used for this only emergency we have ever had in the history of this platform. I could even argue that if it’s really meant for emergenices, the fund could be used in its entirety to compensate the affected ones in the emergency. However, for a compromise I believe we can go for @particleX proposal where still a good portion of sICX is left in the DAO emergency fund. But think of this, if it’s a new emergency, the DAO emergency fund will be greatly funded again by new liquidated people. We should always help out the people in the emergency. That’s my thoroughly thought through opinion.
Correct, I’m an example myself → Added 20k to my collateral day before liquidation, still got liquidated. Like I told before, my confidence will always have a dent because of this event.
No, I haven’t. I would love to see the data. Learning a new skill set to gather, represent, and analyze the data is beyond my available energy at the moment though.
Is 18% the actual difference between being liquidated on Jan. 24th and Jan. 25th?
Keep in mind, if this is your preferred outcome, then someone has to make a proposal for you to be able to support it.
Around 65% I believe.
It does have a well thought out purpose, with a clear use case. There is even definitions of terms and examples. This current situation does not seem to reach that threshold. I’m not saying I’m opposed to the use of the funds, but I am opposed to pretending this is what the fund is for.
Emergency reserve fund
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.
It will be a long time before we see an emergency like this for a number of reasons. The penalty fee was way too high, the collateral got locked early on making it impossible to pay down debt, massive reverse rebalancing giving forced loans bringing the liq price up in the crash (not a great combo), people having to sell other assets at the bottom from elsewhere at a loss to cover their debt and still getting liquidated. So many factors. They were basically trapped no matter what they did. @particleX proposal is the only fair solution for this emergency the more and more I think about it. Let the emergency fund be used for the emergency.
The question we need to ask ourselves is if the emergency fund is not used for this emergency, then what is it going be used for? It will stay in the fund and not help out the people it really should help out. You won’t find a bigger emergency in a while as there were so many factors leading people to lose everything. For the most part, the money of the liquidated is what the emergency fund consists of, so it should really go to them to cover for their crisis at this platform.
My suggestion is as follows. The liquidated parties will be reimbursed up to 50% of their holdings before the crash. The way I propose is this:
Community members are asked to donate what they feel like, and are given a one week window.
The DAO then matches the resulting final tally 1:1, until we reach 50% of what was liquidated.
In case community members donate more than half of that 50%, the DAO will pay out less. In the reverse case, the DAO will pick up the slack.
Personally, I feel this will test whether the community is on board, a kind of put your money where your mouth is, and it will foster community spirit, since it involves the community in a search and rescue.
Hi Arch. I completely agree with your points and created a new topic with some suggestions:
Sorry if it’s written a little poorly. Perhaps someone can word things better or come up with a better structure. I just think it’s completely unfair if liquidated users came out better than people who managed their debt and suffered a massive loss from liquidating their assets and very low prices
Overall, people will not profit from @particleX proposal. They wouldn’t choose this outcome before the liquidation event. If we keep looking for a bigger emergency to spend the emergency fund on, we won’t find it.
Eligibility to claim sICX: ALL borrowers between Jan20th and Jan 24th 2022
Amount of sICX to use: 30% of Emergency Reserve fund and 5% of the BALN from the DAO fund (EDIT: Change BALN allocation to 15% of BALN in emergncy fund for easier distribution)
First let me describe the mechanics:
Across the volatility period, every debt position evaluated every hour/few hours and summed, and the full appreciation amount divded fully between them pro-rata.
Yes this means people holding their position fully through the period get more share than liquidated accounts.
As a modifier in light of the topic at hand, if an account is liquidated their score counts 1.5x.
Key points:
Whatever conditions were true for any parties liquidated, were true for parties not liqudiated, except non-liquidated parties were under those conditions longer. If any argument can be made about the borrower parameters being flawed, and that’s not what I’m saying, but if any arguments can be made, non-liquidated parties were under them for longer, and kept bnUSD stable for longer.
Amount is not related to liquidations, all borrowers pitched in, and this is 100% a goodwill measure, Balanced values its minters for their service in stabilising bnUSD.
In accordance with it being a goodwill measure, the DAO should chip in, and via BALN representing the belief that people which stabilised their risk across that volatility, and are still in today, are longer term members of the community.
Some parties might get more than they lost, many will get less. This is about appreciation of services rendered to Balanced.
Very happy to tweak values but the pillars I feel are important
This is not a refund/compensation/return
This is an appreciation of bnUSD stabilisers that helped Balanced through a rough spot, and gave it space to improve.
Some amount of BALN from the DAO seems appropriate.
Disclosure: I have maintained a borrower position through the entire proposed period.
I believe this is a more comprehensive and equitable way of fostering goodwill.
While i dont think last days event should be classified as an emergency at a protocol level. And reimbursement of any funds is mandatory, required or even a good idea to begin with. Your take is the most sensible i have seen to date.
While from a technical standpoint i strongly feel the best course of action would be to do nothing. I do sympathise that nobody had anticipated the effects of the protocol working as intended, and it could potentially leave a bad taste for alot of borrowers. Maybe even going as far as denting the Balanced userbase (something we can all agree on, isn’t what we want to achieve).
A proposal to redirect part of the Emergency fund towards a goodwill gesture for borrowers, which leaves the emergency fund strong enough to function as intended in an actual emergency as stated in its goals.
In that goodwill gesture, all borrowers should be considered, not just those who have been liquidated.
@benny_options could we open a second locked topic, where the actual proposals can be copied to. So its easyer to read up for people who haven’t followed the entire discussion?
Hi Uglyrage. Thanks for the reply and I couldn’t agree more.
I agree that the reimbursement to users who got liquidated shouldn’t be mandatory. It would be a good will gesture and is being done to maintain a good user base.
I would have been fine seeing no funds refunded to anyone but I do think refunding people who were liquidated would be a good step for the future of Balanced.
I’m on the same wavelength as you. Although I don’t think it’s mandatory that people who got liquidated should receive refunds, if they are refunded I think it only makes sense that borrowers be considered too. It should be no one gets refunded or else everyone is accounted for.
I unfortunately can’t put forward a proposal as I had to liquidate all my BALN to avoid being liquidated. I hope to get it back with time but I took quite a big hit with the amount I needed to sell off.
I agree with the statement that all borrowers should be appricieted.
However I dont fully agree with this statement.
The liquidation fee was ofcourse only applicable on those liquidated. I would suggest to put out 2 proposals to vote on. Im at work now on my phone now but ill put them in the format tonight (unless someone is first)
Proposal 1: return the liquidated sicx in the emergency fund to the liquidated people. Making like it never happened. The liquidated borrowers lost the liquidator fees but get back around 25%
Proposal 2: distribute 5% of the DAO baln to all borrowers. If we want we could set the date/time on that on strategic timeframe causing the borrowers that stayed with us till the end the people that can claim. I will think about a good timeframe later today
The 5% is just coppied from above so I have no particular reason to set it on 5%
EDIT: after consideration I would do it in one text proposal but still both events. Because if seperate it would be unfair if only proposal 2 passes.
This is not really true, people not liquidated knew they would lose all of it at 67% LVT, which is what led to whatever actions they took to prevent it. All conditions are identical for all borrowers. The threat of that liquidation fee no doubt factored heavily into the choices of borrowers keeping their positions afloat.
The implication of 15% liquidation fee is either a lower liquidation ratio, or getting collateral returned, both would factor differently in the actions a person takes to keep their position open.
The thinking that the people not liquidated got off with zero reprecussions from the effective liqudiation fee of 33% is directly the part of all this that is most harmful to the health of Balanced, and the thing I oppose the most from other proposals.