Use BALN, sICX and bnUSD in the DAO Fund to mitigate rebalancing

I have been brainstorming many ideas on how to mitigate issues related to rebalancing. Here are a few things that are already in process:

1.) Getting bnUSD added to Omm to increase the utility of holding it. Personally I think this will help a lot but we’ll see.

2.) Listing bnUSD against USDT and incentivize it in order to make an easier arbitrage with centralized exchanges

3.) Educating community members on the best way to handle rebalancing, hedge against it, and better messaging around rebalancing in the app itself so all users expect it rather than it being a surprise.

Now from the tech architecture side, I’d like to implement a solution that will at the very least mitigate issues and at the very best have a meaningful impact on how often users are effected by rebalancing.

I’d like to develop a new smart contract called the “Stability Pool”. The Stability Pool will always be the first check by the rebalancing contract rather than going to user accounts first. It will be funded with BALN, sICX and bnUSD, and those assets will be traded with the intention of keeping bnUSD stable against sICX.

Let’s walk through a couple scenarios to explain what I mean:

1.) sICX is too expensive on the DEX (this is the most common situation we are experiencing)

How it works now:

  • rebalance method is called on the Rebalancing smart contract
  • rebalance contract sells sICX collateral from borrowers for bnUSD
  • bnUSD is used to payoff their debt and burned

How it would work:

  • rebalance method is called on the Rebalancing smart contract
  • rebalance contract checks the Stability Pool contract to see if it has any sICX
  • If the Stability Pool has sICX, then the Rebalance contract will sell sICX from the Stability Pool for bnUSD. The bnUSD will be added to the Stability Pool
  • If the Stability Pool has 0 sICX, then the Rebalance contract will sell BALN from the Stability pool for sICX, then sell that sICX for bnUSD. The bnUSD will be added to the Stability Pool
  • If the Stability pool has 0 sICX and 0 BALN, it will move on to borrowers (how it works now)

2.) sICX is too cheap on the DEX

How it works now:

  • rebalance method is called on the Rebalancing smart contract
  • rebalance contract mints more bnUSD for borrowers
  • Minted bnUSD is used to buy sICX
  • The purchased sICX is added as collateral to borrowers’ collateral positions

How it would work:

  • rebalance method is called on the Rebalancing smart contract
  • rebalance contract checks the Stability Pool contract to see if it has any bnUSD
  • If the Stability Pool has bnUSD, then the Rebalance contract will buy sICX from the DEX using bnUSD. The sICX will be added to the Stability Pool
  • If the Stability Pool has 0 sICX, then the Rebalance contract will sell BALN from the Stability pool for bnUSD, then use that bnUSD to buy sICX. The sICX will be added to the Stability Pool
  • If the Stability pool has 0 bnUSD and 0 BALN, it will move on to borrowers (how it works now)

Now for specifics. Here is what I propose we allocate to the stability fund based on the amount of rebalancing that has occurred recently. Keep in mind, the DAO Fund can always take some of these funds back, add more funds, etc. These funds are by no means lost:

Proposed allocations to the Stability Fund

BALN: 250,000 tokens
sICX: 225,000 tokens
bnUSD: 250,000 tokens

Click here then scroll to the “Holdings” section for current balances of the DAO Fund

8 Likes

I think this is a great idea. I don’t mind the rebalancing itself so much as the 𝘷𝘰𝘭𝘶𝘮𝘦 of rebalancing I’ve experienced. And for some of my family members, who are less well versed and experienced with crypto, being so strongly rebalanced has been scary and confusing. Anything to mitigate that and reduce the rebalancing experienced by users (while keeping what I think it’s a very innovative mechanism for pegging bnUSD), I think will greatly improve the user experience.

3 Likes

I really like it all Scott.

Another alternative would be to add BUSD would help bring more money from BSC ecosystem into ICON.

But obviously USDT is easier at the moment.

Once BTP is up and running would be good to see BUSD on the platform.

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Yes - I think this is needed sorely required in the short-term, at least until 1 - 3 are in place

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Definitely worth a try! Great idea

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Looks good for a short term approach as many in the community are concerned with the rate of rebalancing. It could work also in the long term too. I personally don’t mind rebalancing however the premium gained is often lost to the loan fee.

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I’ve been trying to compose a tactful and thought inspiring post. All I could come up with is this.

Woh, that’s like a third of the DAO fund.

And pretty much all the sICX in the fund.

I think the stability pool is a great idea, but I don’t like the idea of the DAO fund getting cleaned out of sICX for it.

I also don’t like the idea of selling off a whole bunch of BALN and potentially crashing the price.

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Are there stats for rebalancing?
Amount for the past day/week/month sort of thing?

Isn’t part of the problem that there is just too much BALN minted?

Sort of like when opec ramps up production and the price of oil crashes, except instead of a price crash we get rebalanced.

Excellent Idea, Scott. For me rebalancing has been the one and only aspect of Balanced that caused some bad feelings during the use of the platform.

Your proposal sounds like a real way out of that superficial perception of „seeing ICX disappear from my deposited collateral over night.“

It would also be great if staking rewards could be displayed more transparently. So that In the future the user does not get scared by „missing“ ICX but instead gets delighted by „additional“ ICX in his collateral.

Thanks for your continuous efforts and for listening to your community! Amazing Work.

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Having the BALN tokens as a backdrop isn’t essential to the proposal I’d say. I’d be open to lowering the amount of BALN, especially in the first iteration.

The logic is that if the peg of bnUSD is broken, BALN holders are on the hook as well. This incentivizes BALN holders to put more effort into arb and keeping the peg.

If the UST peg is broken, where UST is less than $1, LUNA gets inflated as people burn cheap UST to mint $1 worth of LUNA from my understanding.

As for the sICX aspect of it, let me explain my perspective.

DCAing out of sICX (at a premium to market) while also supporting the stability of our core product is a great way to build stable reserves for the future while also helping keep the peg of bnUSD.

I hear what you’re saying, and I do like the idea, but unless other issues are solved it is a bandaid with a limited budget.

I tried to figure out the daily rebalancing based on my loan and total bnUSD - I got somewhere around 40,000 sICX rebalanced in the last day, is that close?

Worst case scenario, we buy ourselves 15 days without rebalancing, is that about right?

I’d hate to do this, and be right back where we started, and then have ICX pump and the DAO fund not have any.

I’m tired, it’s been a long day for me, sorry if I’m rambling.

Some questions and thoughts to leave you all with (I’m off after this):

  • What needs to happen to get BnUSD on OMM?
  • Would listing BnUSD on unifi, maybe a ICX/bnUSD pair, help?
  • Would trying to get BALN and bnUSD listed on Binance help?
  • Would an sICX rebalancing pool help - put in sICX, earn BALN, when peg is off it gets sold for bnUSD at a premium?

I like the idea, but I worry when putting a third of the DAO fund in play, and almost all of our holdings in sICX, our native token.
Take care all

2 Likes

I agree with this. I think that as long as there is no full circle arbitrage it will be dificult to fix this “problem”. Furthermore, I also think a stability pool with funds from the DAO will just be a temporary solution, where we will end up with an all bnUSD stability pool after a while and then users will get rebalanced again just like it is right now.

I don’t know what’s in the works for getting bnUSD listed on OMM and what the issues are. Are these just technical and it’s just a matter of time? Or is there not really an incentive for OMM to list bnUSD right now? If the latter is the case, what about providing an incentive with the DAO fund?

DAO fund probably shouldn’t be a speculative investment fund
One thing I seem to get from the whole thread is people view the DAO fund as some sort of ‘investment’ or speculative fund. I don’t think that should be its mandate, we want to spend it and use it for growth afterall.

Balanced DAO should be the foremost party supporting bnUSD
On the issue of not wanting to hold large quantities of bnUSD in the DAO fund, if the Balanced DAO fund is not willing to hold bnUSD, who else will be/is? That would almost be an indicator to pack it up and throw in the towel.

It takes a crap-ton of mcap in a stablecoin to keep it stable
On people wanting good bnUSD stability, I think we need to be realistic, there is 69 billion tether out there to give it its price stability. 32 Billion USDC, 6 Billion DAI etc, etc. If you think about those stables, they aren’t maintaining peg from redemptions, they are doing it via gigantic supply in use. If they weren’t heavily in use, they would be pegged via their redemption mechanic (if any, lol tether). For bnUSD, rebalancing is that redemption mechanic.

Cheaper origination is probably the best way to reduce rebalancing
I think there is too much fixation on ‘theres too much rebalancing’. The solution to too much rebalancing is a temporary contraction of bnUSD supply by people closing their positions. The oversupply of bnUSD reduces, the rewards for open borrowers increase, everyone is happy. As such, the unpopular sounding, make rebalancing as annoying as possible for the people that don’t like it will make it happen less and increase rewards for peopel that are okay with it.
In line with, ‘people should close their positions’, it will also make sense that opening positions be as low friction as possible, so that when the situation changes and theres more demand for bnUSD supply can go back up. As such, I think a reduction of the orignation fee will be the key, that lets Balanced just say, okay, lets have the bnUSD supply fall for a bit. This also lets people trading with loans to open and close their positions to help keep peg.

Hi @arch, thank you for your contribution ~ I would have probably rambled less, and emphasized points you made if you had posted before me.

That’s probably just my multiple posts (in this thread at least). My concern with trading the bulk of the sICX in the DAO fund is less about wanting to speculate with it, and more that to interact with any entity outside of the icon ecosystem, ICX is going to be part of the process - As the only asset traded on CEXs.

I agree wholeheartedly with this.

This makes sense. The long term solution is that this is understood. Cheaper origination fee should help people enter/exit positions more fluidly.

It also goes along with point 3 (below) of educating community members.
I don’t know how to speak eloquently about it, but the conceptions around “borrowing” against collateral leads to expectations that go against the mechanisms that keep the peg. There are less preconceived conceptions around “minting” and what that entails. Would looking at rebalancing as “the peg mechanism’s” response to inflation help, I don’t know if that’s helpful.