Dynamic liquidation LTV

General
1

As a borrower, liquidation at 50% LTV feels very limiting. On centralized lending platforms if I want to take low risk, I can borrow at 25% LTV where liquidation is at 80%.
If I want to take more risk but get more cash on my capital, I can take 50% LTV loan.

On anchor you possibilities for getting capital on collateral are lower because of 50% is max. That is ok. But what I find troublesome is that with very conservative 25% LTV you are still taking relatively high risk of liquidation. Basically I want to sleep at night not worrying about temporal flash crashes.

So I was thinking of ways the liquidation LTV can be changed to be more comparable to the industry standards. So far I have 2 ideas:

  1. Staking ANC is “buffer collateral” that reduces the liquidation point.
  • ANC itself can not be liquidated
  • ANC value as collateral is counted at some reduced rate
  • There’s a ceiling of the LTV liquidation improvements you can get
  • The loan can be taken still only against real collateral.
  • If your LTV against not buffered collateral is above 50%, you cannot unstake ANC.

Let’s say I have 1k$ in bLuna collateral.
I have 1000$ in staked ANC.
Max loan I can take is 500 against my 1k of luna.
I take 400$.
At the moment, if luna drops 20% I get liquidated.
With this change, my 1000$ of staked ANC counts as “buffer”, let’s say the ANC is counted at 25% of its value. So I have 250usd buffer.
So my real collateral is 1000, my computed collateral is 1250.
The liquidation starts only when you are 50% LTV against computed collateral, with some upper limit on how much ANC can be counted as a buffer.
ANC itself is not at risk of liquidation, it just gives “trust” to the borrower and allows them to sleep at night, or take little bit bigger loans that can still be considered safe.

Plus ANC utility.

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2

The other idea I had was having some “time buffer”.
Where if you borrow at a low LTV, like let’s say 30% and lower. You are considered “safe” borrower.
Safe borrowers get liquidated at 70% LTV instead of 50%.
You lose “safe” status if your loan got above 35% LTV or more for more than 24 hours.

This way you can sleep at night because that additional 20% before liquidation means a lot. And you are given 24 hours to keep your position in a healthy status before you lose your privilege as a “safe” borrower and get liquidated at usual 50% LTV.

The idea for this is to not get rekt on a flash dip that lasts a few hours while you sleep.

Both options can be combined, where maybe in addition to just keeping your loan healthy you also need a staking position in ANC.

1 Like
5

So it’s sort of like using your staked ANC as an ‘overdraft account’ when hitting the liquidation ratio.

Makes sense to me.

As long as the liquidation still occurs within a reasonable timeframe (12 hours?) since the ANC doesn’t have enough income to pay for the lost interest for the reduced value of the Luna. This could also allow more time for the liquidation bids to come in making that market more efficient and less punitive for borrowers.

6

I can imagine a scenario where you could allow the protocol to liquidate staked ANC to pay down debt automatically when LTV hits 50%. However, this would encourage people to take out risky loans which result in the price of ANC dumping every time LUNA dips.

It isn’t feasible for the protocol to allow this staked ANC to act as collateral (thus allowing you to exceed 50% LTV without liqudating anything) because ANC is not designed to have a 10% average yield in the same way that LUNA is. Making the ANC yield part of the equation for providing yield to depositors could have unforeseen consequences.

7

I love this idea, I actually dm’d Do on Twitter that they should implement something similar to this. I would actually like to be able to setup cascading layers of liquidation across the entire Luna ecosystem - including my Mirror LP’s! I think this is the type of mind bending, earth shattering, bad ass shit that we could only dream about building on the blockchain.

1 Like
8

I really think this idea deserves more consideration. Does anybody on the Anchor team have an opinion on the feasibility of this concept?

9

I agree with you. I’m thinking that not only ANC but UST/aUST can be used as buffer.

2 Likes
10

While you are correct, I do think having bonded ANC (bANC) as Anchor collateral may be a worthwhile option here. The low yield of ANC staking can perhaps be compensated by requiring bANC to have a low max. LTV value, which also makes sense when you put ANC’s high price volatility into consideration.

1 Like