Given recent volatility, there has been a fair amount of overnight liquidations, with borrowers many times getting liquidated at lows. Not sure if Anchor team is already working on this, but borrowers should be given a chance to counterbid for their collateral. At the same time, the protocol should still incentivize liquidators in order to minimize the risk of defaults. What if we implement the following:
Increase the Activation Period for a bid from 10 min to 20 min to give Borrowers more time to counterbid
Create a notification mechanism to the Borrower as soon as a liquidator submits a bid on Borrower’s collateral, including the premium bid by the liquidator. (This is assuming a “bid” involves a change in state for the chain so that a bot can notify the Borrower based on the ledger)
Give the Borrower a chance to pledge more collateral to get to a safe risk ratio.
The liquidator is rewarded by receiving a premium that is the lesser of the premium bid and 5% of the liquidation amount. This will be paid by the Borrower
Please note that this is just a suggestion for how we can give borrower’s a chance to prevent liquidation while still keeping liquidators incentivized. Any of the steps mentioned above are open to adjustments.
The 10 min activation period is for new bids, ongoing bids will just trigger and this is a good thing for the protocol, the longer a defaulted loan is left unchecked the higher the risk for the protocol, so we’re increasing the chance of a default on Anchor because we’re waiting for borrowers to adjust their LTV (which is essentially what you’re suggesting, even if they bid for their collateral would be the same as just have them adjust the LTV).
The only feature I see viable right now is allow borrowers to deposit without getting aUST (a sort of illiquid deposit) or let the borrower to provide aUST as a special collateral that doesn’t impact LTV but is used to repay the loan, and allow the protocol to use those “illiquid” deposits to auto repay the loan when it defaults before allowing bids.
EDIT: And this suggestion is basically Nexus Protocol, difference being you’d be able to choose how much to provide to repay.
I think it’s worth exploring the Nexus aUST model. Creating an Anchor liquidation vault where users can deposit UST. Anchor would take a fee on this yield to pay for the protection which helps buffer the yield reserve. However, the major limitation is aUST-UST spread can be wide, even wider in times of high VOL when shit his the fan. On market orders with wide markets, users could lose more on the spread than if they got liquidated. I am confident this changes as more arb and volume on Dexs solve this.
This is somewhat similar to the idea @PFC was talking about. Probably worth having the community brainstorm on this idea over on the Anchor discord stage sometime soon.
Some thoughts: Flashloans actually solve this problem in a more capital-efficient way. Anchor could look at using flashloans in a similar way to give users access to a flashloan mechanism whereby Anchor charges a fee to allow users to opt into flashloan protection and takes a fee on the flashloan if executed. This would be an all-around win-win for users and the platform. The other option would be to work with whitewhale to provide this function. Ideally, though the protocol would want the revenue.
thanks for that, it seems we’re on a similar track, just a matter of how we get there
I really want to use ANC in some way to do this, but nothing I come up with seems viable lol
If a “shield” mechanic is implemented as another pool, it will take away from gov
If gov and shield are a single mechanic, ANC is locked upon voting and cannot fulfil its potential function as a last step safety measure
Perhaps a new token just for this?
Perhaps staked ANC in gov (or even voting participation?) = percentage of time/loan protected
Anchor is one of the most important protocols in defi and I really want to see ANC utilised in a meaningful way here. and as much as i love cross protocol collab and especially love white whale, I think Anchor needs to evolve its own way forwrd