Thread by @SirRobinBTC

Many in the $ICX community are not aware of the events that occurred on @BalancedDAO over the last 36-48 hours.

As someone with an outstanding loan:

Here’s a summary of what transcribed and a bit of knowledge we learned along the way.

👇

1/11

The story really started the day of the ICY/Z airdrop snapshot. Over $25m in volume, with the majority selling, caused borrower’s debt to go up 38% to accommodate such strain on bnUSD

Rebalancing is a mechanism $BALN uses to keep the bnUSD peg close to $1

2/11

If the bnUSD peg veers too far up, the borrowers take on additional debt to buy that discounted sICX.

Could be great if you wanted to buy more.

Now comes Friday…

A 400k $ICX wallet gets liquidated at $0.80, and begins a rebalancing loop on all borrowers.

3/11

This creates a series of cascading liquidations, squeezing the remaining borrowers from both sides; price is crashing and your loan is going vehemently up.

Bots liquidate, earn an 11% discount, and immediately dump it all to lock in the profit, pushing the bnUSD peg up.

4/11

You also have OptimusDeFi bots saving their borrowers by being the next to sell to counter the rebalancing.

Borrower’s loans went up another ~50% over the course of 8-12 hours.

5/11

If you couldn’t get rid of the new debt faster than everyone else, you now have a larger loan %, which means your % share of future rebalancing is now even higher.

Thankfully, the DAO proposed a number of solutions to help calm further rebalancing and liquidations.

6/11

In ~4 hours, the liquidation mechanism that would normally be triggered once your collateral reaches 66.7% of your loan, will be increasing to 85% LTV.

With this 27% cushion, a $0.62 liquidation drops to ~$0.475.

This gives a size-able gap for ALL borrowers positions.

7/11

With other borrowers’ risk influencing my own, this is a massive relief.

The DAO is considering options on how best to prevent something like this in the future.

Imo, #BTP launch will help the most.

8/11

The only way into bnUSD with any real liquidity is sICX; you buy ICX on exchange then sell it for bnUSD to pay your loan down.

So even outside money had to continue the rebalancing loop.

With BTP, there will be many bnUSD pairs.

9/11

Thanks to @helloiconworld’s #BTP incentive program which includes boosted yields for BTP-wrapped assets, I expect $ICX and @BalancedDAO can attract new users and liquidity.

Along with some tweaks to rebalancing, hopefully this kind of event doesn’t happen again.

10/11

If you appreciate the thread, please like, retweet or follow me so I know to continue writing things like this in the future!

I hope everyone is surviving this downtrend and looking forward to celebrating #BTP with everyone soon.

Cheers,

11/11 the end