Official auto-repay analysis

Hi everyone,

So, many people want more borrowers, but even more people are afraid to lose 15% (or more) of their bLuna due to liquidations when they are sleeping, or just distracted.
There are already at least 4 different auto-repay bots (you can find them on Discord, #useful-tools channel), but they require you to run the software 24/7 either on your computer or a VPS (virtual private server) on a cloud somewhere.

While getting these programs up & running is really no big deal (it’s more fear than any other thing, really), since they’re not a native solution, a lot of people will still not trust their funds to a “random program made by a random stranger on the Internet”.

What I want opinions on, is… even if Anchor builds an auto-repay function inside the website itself… what would happen to the liquidators, and the team behind Harpoon Protocol?
I mean, if you develop a way that “self-liquidates” you, preventing from being hit 15% on your collateral, then why not make it run when the LTV reaches 50%, rather than letting the liquidation sharks bite you?
And even if you don’t “force it”, most people will enable the feature anyway, so there will be much fewer liquidators in the platform, and nobody will care about Harpoon anymore.

Liquidators are important (I think?) to the platform so that the UST deposits (Anchor Earn) are never lost…

Thanks in advance for your time reading, and also for replying to this thread.

Kind regards,
Sérgio ‘Chinoman10’ Rebelo.

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I agree that entirely doing away with liquidations does present a problem.

Just brainstorming… what if an auto-repay tool that gets integrated into Anchor took a small portion of the % from borrow APR as a “protection fee” for using the automated tool, and injected this back into the protocol somehow. Those that chose more risk, could manage it themselves and get a slightly better return (and still be at risk of liquidation). Those that don’t want the risk of liquidation could give up some portion of gains to avoid that unexpected loss. I know “not everything needs a token” but if Harpoon had a token that they could then stake for their ‘share’ of this protection fee, it might be a possible solution of sorts? Please feel free to point out flaws in this idea!

After further thought, maybe it would just be best to keep it more simple… what if the protection fee was then used to buy ANC and burn it? This could contribute to the ANC token value over time, which may be a better solution.

As a user, I would appreciate that function, as it would solve one of my final problems with the ecosystem: Paying attention to a potential liquidation.

As this feature was not integrated from the beginning, I guess that there is a good reason to have the liquidations as an incentive to have the protocol running and sustainable. That said, I think that the liquidation topic will probably be less relevant, once we resume either the bull run or finally reach a true bear.

Liquidators should always be seen as a last resort, the aim is to keep the borrowed amount repaid, and should do what best for the protocol, so auto-repay is keeping collateral on the system, where liquidations is taking it off, this is why its important Liquidations is always seen as a last resort.

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I think it’s a great idea to create a new revenue stream from the “protection fee”. However, I would position it as a “convenience fee” to users which is small and palatable (e.g. 0.5%). Users who do not wish to pay for this are free to manage it themselves or implement the "random program made by a random stranger on the Internet”.

There’s a cost for convenience & safety (of the auto repay feature being implemented by the Anchor team), and this will accrue to the reserves. This is great as it is a counter-cyclical revenue stream for building up the yield reserves.

If we direct the protection/convenience fee into yield reserves, I believe there’s an existing process to buyback ANC (quote below taken from the docs)

ANC captures protocol fees generated from Anchor, where 10% of value flowing into the yield reserve used for the value accrual of ANC tokens.

I think there will still be a place for harpoon and liquidators as not everyone will agree that an auto-repaying loan is the most efficient use of capital (e.g. if borrow APR drops to low double digits, keeping an idle pool of UST ready to repay may not be the best use of capital on a blended basis). The auto-repay tool also isn’t guaranteed to work.

  1. Users may run out of UST
  2. If too many users set the same level for auto-repay, there might be congestion which blocks the repayment from happening
  3. Process of auto-repaying may be expensive due to the repeated transaction costs incurred

Good points! I didn’t realize about the yield reserve and 10% value accrual of ANC tokens. This seems like an even easier and more straight-forward solution that would still benefit Anchor overall. :+1:

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