I think it is time to start revisiting adding a Bank Lending pool. Both AAVE and Compound offer lending pools with a lower collateral factor. I think it would be prudent to start it off with a very low collateral factor maybe 20-40% in order to prevent an attack like happened to mango. Perhaps even consider a max borrow limit.
I think it makes sense to add BANK, the very own asset of the protocol, to its lending pools.
For the purpose of risk management, I think we should start with a relatively-low collateral factor of 5 to 10% only and see how things evolve.
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unfortunately BANK doesnt meet the requirements we used for other ASAs aka deep enough liquidity + off-chain price feeds. i know other lending protocols listed their tokens, but they have deep liquidity. looking at the volatility of BANK in the last month its just way too risky to list BANK
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Would there be any risk if it had a collateral factor of 0? Meaning you could borrow it but not use it as collateral? Also could it be implemented with a borrow factor implemented? Meaning you couldnt borrow more than say 10-20% of your over all borrow capacity…
someone could buy a lot of BANK and pump the price and liquidate people this way. and to liquidate those liquidators would have to buy more BANK which could make the price go up more and the bad actor could sell their BANK at inflated prices. they might not make a profit but they could hurt the protocol a lot, if they pump the price enough it might not even be worth it for liquidators to get the BANK to liquidate people
How would pumping the price of bank lead to liquidations if the collateral factor is 0? Meaning you cant use Bank as collateral you can borrow Bank but your collateral is your other ASAs or Algo…
you have ALGO deposited and borrow BANK against it. if BANK price denominated in ALGO rises a lot you can get liquidated
example:
you have 100 ALGOs deposited (collateral factor 75% so it “counts” as 75A) and borrow BANK against it, lets say BANK price is 0.01A and you borrow 5000 BANK (50A worth at that time). Now the price of BANK goes to 0.02 A then you borrowed BANK is suddenly worth 100A, which is more than your collateralized ALGO and you get liquidated. the liquidator needs to pay back part of your debt (in BANK) and seizes collateral at a discount (7%)
Okay that makes sense so then there should be a collateral factor of greater than 0 so that your borrow limit goes up as the price goes up. Perhaps then having a borrow factor that prevents people from borrowing huge amounts of bank. Overall I just think its important to have something to do with Bank other than locking it away for long periods of time in algofi governance or risking it in the LPs. It would just be nice to earn an APR while simultaneosly increasing the TVL in the protocol overall. I also just think having it listed on the lend page helps attracts investors to buy Bank for speculative purposes. We need to attract TVL and investors to help drive up the price of bank. I think haveing an abysmally low price of bank hurts the protocol and a higher market cap of bank helps secure the protocol and the DAO. Just my 2 cents.
the collateral factor has no influence on my described scenario
Well if you had a collateral factor of greater than 0 you could use you4 deposited bank as collateral and that would increase your total borrow capacity as the price of bank rises preventing you from being liquidated. I agree that if you borrow bank and the price goes up you lose and get liquidated. I personally think it is incredibly foolish to borrow a deflationary asset at least for the long term because you are basically guarunteed to owe far mor than you borrowed as the value of the token goes up. That being said if you are borrowing short term to speculate and short a particular asset then that is what it is. Theres a reason GoBtc is only paying .01% because nobody in their right mind would borrow it unless they are going to short Btc or put it to work somewhere where it gets greater returns paid in Btc.
if you borrow BANK to the deposit it again you are just loosing money. people would borrow it to LP it or to short it and in both cases they could be liquidated in the example i used
Yeah I agree with you totally. I dont think borrowing and crypto asset that has an ultimately fixed supply is a smart idea unless you can get a greater return from LPs. Its not our job to protect people from making bad decisions and getting liquidated accordingly. I just think it would be beneficial for the protocol overall if algofi showed that it had faith in its own governance token by allowing it to have a lending market and I think speculation helps bring in liquidity and overall TVL. I would prefer we start with a low collateral factor and perhaps a borrow factor to help mitigate risk. I just think it would help incentivise people to buy bank on the market and would allow people to grow the liquidity for bank.
not completely yes, but listing assets that can be relatively easy manipulated is careless. and the protocol could be damaged as well, because liquidators might not be able to buy enough BANK on the open market to liquidate people. and a collateral factor + low liquidity might lead to something like the Mango market exploit (more about that here)
I’m well aware of the mango market attack. Thats why I think it would be good to start with a very conservative collateral factor like 20% and perhaps it would be good to do a borrow factor also so that people cant borrow huge amounts. I think this would usher in a reason for people to buy Bank and help grow liquidity as well as draw in overall TVL.