Raise bLUNA LTV to 80%

General
21

What are odds of creating a bot to auto-liquidate? The bot can determine when an outstanding loan is profitable to liquidate than execute the necessary smart contracts. Utilizing reserve to facilitate.

In terms of if bluna is illiquid we can utilize a similar concept to spectre with their bpsidp vault. Where if bluna drops below its peg (luna) another bot would arb the difference (accumulate bluna) until they were in balance.

As long as a bluna-luna pool is illiquid it would always be profitable to arb (your running delta neutral on luna) it would also provide more revenue streams.

Alternative is we can get ohm bonds onto bluna-luna to ensure liquidity.

As long as that pool as liquidity I donā€™t see why bluna-UST wouldnā€™t have liquidity.

22

THIS is a very interesting idea. Although, it might discriminate against someone like Nexus, which we wouldnā€™t want.

23

If we go through with this, would we also need to reduce the max liquidation premium? If LTV can be raised to 80% and assets liquidated at a 30% discount, could this not lead to insolvency?

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24

Do we get the data then propose/vote or do with vote first?

1 Like
25

First modeling then once it is proven it can be done the voting should start

26

Modeling is being done, should be done by end of week. So far the data is looking good.

bluna-luna spread is tightening and will continue to tighten with Astroport

3 Likes
27

Thatā€™s awesome! Once modeling is done. What would be an ETA till voting starts?

2 Likes
28

ideally, next week if the data can all come in and be properly looked at this week. If not, the following week after that.

29

As proposed, raising LTV to 80% will increase collateral capital efficiency. This is not only needed to generate more loan revenue from collateral but to also make the borrowing side more comparative with other well-established lending protocolā€™s LTV ratios. Moreover, increasing the LTV could also encourage more people to take out loans due to capital efficiency.

The two major risks for doing this are:

  1. Liquidation queue risk
  2. bLUNA-LUNA liquidity risk

The last week has been the first major test since the May crash, demonstrating a lot has changed since then. Below takes a look at both these risks since the May crash.

Liquidation queue

Mainly the liquidation queue has tightened significantly since May with the launch of Kujira. There are also several others such as Lighthouse Defi launching to help with diversification of the queue and adding more liquidation bid liquidity.

During the 38% drop in the LUNA price on Jan 21 & 22nd (and 48%+ from top to bottom so far), liquidation premiums never topped 10% demonstrating greater liquidity depth in the liquidation queue

Liquidation premiums (exponentially smoothed):

liquidation-premiums2
liquidation-premiums21920Ɨ1080 225 KB

This demonstrates the major strengthening of the liquidity bids and strength of the mechanism that should only get stronger over time as more demand for these products liquidation bid platforms increases.

bLUNA-LUNA liquidity

In the past, bLUNA-LUNA spread substantially widen by ~ 46% during the May crash when luna dropped over 77%. However, since then the spread has developed built significantly more liquidity:

liquidity
liquidity1920Ɨ1080 129 KB

[Synthetic pool liquidity index that is built from aggregating and modeling of spreads showing you can buy/sell at any time with no serious price effects]

Synthetic pool liquidity index that is built from aggregating and modeling of spreads showing you can buy/sell at any time with no serious price effects

Despite a 38% drop in LUNAs price on Jan 21 the bLUNA-LUNA spread widen by less than 6%. Looking at a synthetic pool liquidity index also shows the trend of liquidity depth of the pools is moving in the right direction. More importantly, there is pool diversity with listings on TerraSwap, LOOP, and Astroport that collectively hold over half a billion of combined TLV in the pools.

As more liquidity forms around the Astroport and LOOP bLUNA-LUNA pools, this spread will tighten more to further limit the liquidity risk.

Moreover, as more liquidation queue front ends pop up that work to automate liquidations to make it easier for users like lighthouse Defi is doing, the depth of the liquidity behind the liquidation queue will deepen and lower the premiums needed to successfully execute liquidations.

Side note, bETH LTV will stay the same since the depth of liquidity on the bETH-ETH pool isnā€™t deep enough to even warrant deeper research.

On the back end there will have to be some changes to how combined collateral loans will be calculated, ideally now on a minimum borrow ratio. This was something that will need also to be figured out for the new v2 borrow model and cross-chain anchor because it will onboard new collateral assets that have different LTV ratios.

6 Likes
30

Thank you for the data, great work the charts are easy to understand. Love to see the data pointing in the right direction for a higher ltv!

1 Like
32

The poll is live - please go vote! Anchor

3 Likes
33

Not clear to me if the poll is asking to simply set liquidation threshold at 80% and leave max borrow at 50%, or are we changing the max borrow as well?

1 Like
34

Itā€™s to change max LTV to 80% the code is in the proposal. For example max LTV is 60% but we can only borrow to 50% presently.

35

Havenā€™t read all the posts here, but LUNA is a lot more volatile than ETH or BTC. So its LTV limits should be significantly more conservative than whatever the market convention is for BTC or ETH.

ETH has an annualized implied vol of 90-110. Iā€™d guess if LUNA had a liquid options market itā€™d be a 140 at least. Therefore, the current settings are actually inline with market LTV for BTC or ETH, vol-adjusted.

2 Likes
36

Thats up to each borrwer to evaluate and decide. What matters is making sure the protocol is safe.

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37

He was asking what will the new safe LTV/maximum borrowing limit one can get.

It currently sits at 45% ltv. With the increase to 80% LTV will the maximum borrow limit raise? By how much? 65%, 70%?

One thing is the max LTV another is the maximum borrow allowance

38

Thatā€™s not the only thing that matters. Another thing that matters is that the overall user experience is roughly inline with expectations. If people borrow up to something not too far off the max and get blown out during high volatility ā€œbut the protocol is okā€, the user feels pissed off & scammed.

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39

Thatā€™s a lie, they will simply know they fucked up real bad and take it as a lesson. Plus there hasnā€™t been any fundamental change in how borrowing works. People will simply be able to borrow more with the same risk exposure they had at 60% LTV.

Godā€¦ people use 100x leverage on exchanges like binance and I havenā€™t seen any mass exodus occur yet on such exchangesā€¦ If anything a little warning sign could be added to stop stupid people from doing stupid things they donā€™t understand. But I highly doubt the average anchor borrower is like thatā€¦

3 Likes
40

Would be great if we could raise it to 80% but require a certain level of ANC staking to reach that level. Maybe 0 ANC stake gets you 60% and there are 5% tiers (65, 70, 75, 80) that correspond either to absolute value of ANC staked (500 ANC, 1000 ANC, 1500 ANC, etc) or percentage of borrowed (5%, 10%, 15%, 20%).

6 Likes