Renew the functionality of Balanced

Proposal Discussion WIP: BIP
#1

I am suggesting to revert some of the recent changes done to Balanced last week.
Those changes were meant as a temporary measure to give borrowers with locked collaterals a period of relief during the recent market downturn.
Since then the peg of bnUSD has been constantly off, and other stablecoin pairs have also suffered accordingly.

Current:

  • Rebalancing Threshold 10%

  • Locking LTV 67%

New:

  • Decrease Rebalancing Threshold to 5%

  • Decrease Locking LTV to 50%

I believe that by the time this vote goes live, people will have had enough time to bring down their LTV ratios.
Ideally I would like to decrease the LTV and rebalancing threshold even further if this proposal passes.

Please share your opinions.

3 Likes
#2

There is also talk going on in this thread, if you’d like to share ideas there.

#3

Overall my thought would be to wait until the rebalancing mechanism is enhanced, discussion @AwaxJago shared above. But of course, feel free to propose your idea

#4

I think it would depend on the expected time to implement the enhancements.

Although something to think about is, the peg is currently above 1USD, and I believe one of the main enhancements is to have an assymetric peg, with a view that the upper bound be much wider.
In that case there doesn’t seem to be a pressing need to change the peg, as change it to 0.98 and 1.10 or something would be same as now

#5

I would like to move forward with the LTV change as soon as possible.
With the current rebalancing mechanism, Balanced should not be providing people with these high leverage possibilities.
As we saw, liquidations played a big role in the shortage of bnUSD, and high leverage positions mostly lead to liquidations. If the crypto market decides to go even lower, the next event might be just as severe for balanced.

I am going to put up the following proposal in a couple of hours:

  • Decrease locking LTV to 45%
1 Like
#6

I think this proposal was too quick and a bit more lead time should be put into lowering LTV. If the plan is to lower it, it should be broadcast ahead of time to make sure people have enough time to react and adjust accordingly.

What is the downside to having the higher LTV in general? With the peg still way off on the high side, it seems like the demand for bnUSD is still quite high. Lowering LTV effectively increases that demand, does it not?

3 Likes
#7

Some things need to be restored, like the lower bound on bnUSD. I am not sure there is a real issue with not locking, the liquidation threshold is there to safeguard the platform.
You can currently get higher LTV on another platform on ICX atm, I don’t see a particular risk/danger/issue with the current locking threshold, or even to have it be the same as the liquidation threshold

Not locking allows people to manage their risk in a more fine grained fashion. Critically, not allowing people to easily close their position is a fairly large issue in my opinion

1 Like
#8

Post/vote or post a discussion about this proposal?

I think posting a proposal discussion specifically for “Decrease locking LTV to 45%”, and trying to get some good feedback and consensus on the change (or need for a change) would be ideal.

1 Like
#9

Fully agree here.

I understand the intent behind the LTV lock, but in practice it seems to have caused more issues than not.

Further, lowering the LTV (rather than raising it) can actually lead to more problems in the short term since some people, i’m sure have likely not even seen this discussion and will be locked again.

#10

I think we need a mechanism so that borrowers can sell locked collateral to pay off their loan before we lower the LTV again.

My understanding is that this is something in development, so it would be best to wait for that and for some of the proposed changes to rebalancing.

1 Like
#11

Current changes were made during the panic of the market, with not much discussion behind them.
Keep in mind our previous liquidation ratio was 66.67%. That has now become our locking ratio. Balanced started out with a 20% reward LTV and 25% maximum borrow amount LTV.

The locking ratio serves as an additional buffer for borrowers and Balanced. Borrowers are meant to keep their loans below this threshold in order to not lose access to their collaterals, and Balanced wants to prevent liquidations as they negatively affect the peg of bnUSD.

Current rebalancing mechanism does not fair well with high leverage positions.
Say there are two borrowers- Borrower A with a LTV ratio of 20%, and Borrower B with a LTV of 60%. When reverse rebalancing occurs, both borrowers have their LTV adjusted according to the size of their loan over a series of rebalancings. Both borrower positions are increased by 10%. Borrower A now has a LTV ratio of 22%, and Borrower B a ratio of 66%.
It will be very hard for Borrower B to micro manage the rebalancing meanwhile Borrower A might not even notice it, and will be happy he has bought sICX at a premium.

The previous scenario doesn’t take into account the drop in ICX price. If you combine the drop in there as well, Borrower B will be affected even more by the rebalancing, which will most likely lead into liquidation.

Decreasing the locking ratio protects both the borrowers and Balanced.

#13

Sorry, but I disagree with this.

While what you are saying is technically correct, the fact that, as it stands, borrows don’t have to worry about the negative impacts that rebalancing can have simply because they can’t get locked nearly as easily is what is important.

It’s the locking portion of the rebalancing process that makes it the most dangerous. While liquidations aren’t a “good” thing, I don’t think they are having as much impact on the peg as you suggest they are. In fact, liquidations at this point would only increase the demand for bnUSD, bringing the peg down (and more inline with 1.00 usd).

I digress, though. In my opinion forcing users to adhere to the LTV locking is re-introducing the root issue unnecessarily, especially since there is ongoing discussion on how to resolve that. Until there is a concrete decision and action taken to address the rebalancing loop, the locking LTV needs to be as loose as possible.

Once users can sell ICX to pay their debt regardless of LTV, or a better rebalancing approach are in place, lowering the LTV will be no for me.

I’m still not sure what the argument for lowering the LTV would be outside of rebalancing either, especially with bnUSD demand as high as it seems to be right now.

#14

While liquidations aren’t a “good” thing, I don’t think they are having as much impact on the peg as you suggest they are. In fact, liquidations at this point would only increase the demand for bnUSD, bringing the peg down (and more inline with 1.00 usd).

A liquidation is equal to someone selling sICX for bnUSD.

5,8m sICX being resold to borrowers is bound to have an impact on the peg.

It’s the locking portion of the rebalancing process that makes it the most dangerous.

It is supposed to be dangerous. It’s a warning for the user to not do something that is hurtful for himself and the platform.

#15

We reached that point with liquidations because collateral was locked and people had difficulty manipulating their positions.

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#16

This right here should be the main focus. Being able to sell locked collateral and paying off a part of your loan will allways give people the option to derisk their position.

1 Like
#17

Someone selling sICX for bnUSD is how people also manage their loan risk, so liquidation is really no different then “responsible borrowers” doing what they need to to avoid it. And yes, selling sICX (regardless of how it happens), will impact the peg and did, hence the constant rebalancing. The vast majority of people who were or almost liquidated (including myself) were only liquidated because they couldn’t sell their sICX after it was locked and they got pinned between the loan and the rising liquidation price.

Until there is a solution to this problem, the LTV should remain higher. A higher LTV doesn’t have any impact OTHER than it gives people the freedom to use the protocol without the risks above.

It is supposed to be dangerous. It’s a warning for the user to not do something that is hurtful for himself and the platform.

Not to come off as crass, but this is kind of absurd in my opinion. The rules of the system are defined by the smart contract. We don’t need to punish people for doing what they will anyway.

Ultimately if people get liquidated and the locking mechanism isn’t preventing them from managing their loan, then there is no excuse they can muster. But selling sICX to bnUSD isn’t “dangerous” for the platform, it’s a core feature and requirement, even if it’s done by liquidation (which protects the protocol).

Anyway, this horse is beat quite dead. I think lowering the LTV without much discussion or short notice is far more dangerous than leaving it at this point.

2 Likes
#18

Fully agree with you. This proposal has its merits, however I don’t like how it was pushed, hence voted against it. I feel this needs to be discussed further. I also agree with Scott that we should wait until the rebalancing mechanism is enhanced.

1 Like
#19

I am glad that it hasn’t been an one-sided vote.

Here is some data I gathered.
Currently there are around 230 borrower addresses above 45% LTV
The day we implemented the 65% LTV, around 280 addresses were above 45% LTV.
Only ≈50 people have used the possibility to lower their LTV so far.

Maybe I did rush with the vote


4 Likes
#20

But I still believe the high LTV should be addressed ASAP.

A person can take out a 67% LTV loan right now against sICX. If the price of ICX drops ≈24%, that person will have effectively shorted ICX and damaged the functionality of Balanced.
With a 10% rebalancing threshold, the bnusd peg can be expected to drop as low as 0.85-0.87, that’s where the 24% comes from.

The bad debt of that person will also have trouble finding volunteers who are willing to retire their bnusd for it, due to the high price of bnusd.

And historically, the odds of us not going any lower aren’t in our favour.

Edit: The person would be liquidated after a 21% drop.

1 Like
#21

I agree with you. The settings we have now are very dangerous and unfavorable for new users.

I believe we should revert the new settings ASAP.