Discussion: USDC collateral type, backed by B.Protocol with 90% Liquidation Threshold

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B.Protocol, a decentralized backstop protocol, proposed a native integration with Aave by introducing a new collateral type, USDC-B, potentially offering Aave users a x10 long position on USDC and paving the way for more high leverage opportunities. The proposal includes specific risk parameters and a Committed Backstop design, and it aims to increase system stability, prevent future Black Thursday events, and is open for community discussion and potential subsidization by B.Protocol.

The discussion began with Yaron introducing B.Protocol, a decentralized backstop protocol that has been live on MakerDAO for a month. The protocol, which has already backstopped around $11m of ETH collateral and $4m of DAI debt, relies on committed liquidators who get priority in the liquidation process in return for their commitment. B.Protocol proposed a native integration with Aave by onboarding a new collateral type, USDC-B, backed by a strong commitment from B.Protocol backstop. This could potentially offer Aave users a x10 long position on USDC and pave the way for more collaterals to be backed by B.Protocol with high leverage opportunities.

The proposed risk parameters for this integration include a Loan To Value of 88%, Liquidation Threshold of 90%, Liquidation Bonus of 5%, Reserve factor of 10%, and a Maximum total supply controlled by the DAO, initially $5m. The Committed Backstop design involves a single liquidator who opens an account with a $0.5M USDC deposit and 0 debt. The liquidator can withdraw collateral or increase his debt only if his net position is over $0.5M. In the case of liquidation, if the account is unsafe and has USDC collateral, half the debt and 1.05d worth of USDC collateral are shifted to the liquidator's account using a flashloan.

Yaron also proposed a new collateral for Aave users, which he believes would allow better leverage, increase system stability during sharp market movements, and potentially prevent future Black Thursday events. He called for a community discussion on the requirements for community consent for such a collateral, any missing technical details, and the possibility of starting with a different collateral like ETH, WBTC, or USDT. Emilio found the idea interesting and suggested that Alex_BertoG might be able to provide insights on the risk-related aspects. The discussion is ongoing, with all parameters open for discussion and the potential for the development of such a protocol to be subsidized by B.Protocol.

Posted 3 years ago

Last reply 3 years ago

Summary updated 2 months ago

Last updated 09/12 13:53