Allow users to short synthetic assets against sUSD.
Hey @mjs12 few questions please:
- In order to repay the loan (for example sETH short), can it be done in sUSD at the equivalent sETH rate. Or does the user need to procure sETH.
- The SIP refers to the liquidation mechanism as described in SIP-15 which is snx liquidation mechanism, did you want to refer to SIP-97 instead? Also can liquidation happen with sUSD or does it have to be in the currency with which the loan was taken.
User needs to procure sETH, meaning that SNX stakers will receive the fee when the shorter “repurchases” the shorted synth.
They both use the formula from SIP-15 to determine how much of the position needs to be liquidated and the collateral penalty that is paid out. However, there is no eligibility period. When you go under the minimum ratio, you are immediately eligible. This is probably not clear from what I have written up in SIP-97 and SIP-103. I will update to explain this.
thank you, all clear, and there was 1 more question, but I guess it’s obvious obvious maybe, liquidator needs to procure the borrowed synth to liquidate? Or can it be done in sUSD?
Why would liquidator have to procure any synth at all? Self collapsible loans could be utilized here, making liquidations super efficient. So liquidator would just burn the collateral basically.
man I hope they implement with self-collapsing loans… I mean, this will lead to only compensating keepers for the gas and avoiding 10% penalty on borrowers
I think 10% penalty should be kept, as incentive for borrowers to keep their loan healthy. But that penalty could be split, with 5% going to liquidator and up to 5% going to fee pool. So we could have liquidation ratio set as low as 110%, lowest in the whole DeFi space.
Why should minters get some part of liquidation penalty? I see this as reward for taking the risk of potential under collateralized loan in case liquidation is not triggered in time.
well that makes sense… although I would agree with you on the 10% penalty in case the min collateralization ratio is 110%… but given that it would be set at 150%, honestly the risk on minters is negligible…
So probably the 10% penalty could be decreased to let’s say around 5% with 2.5% going to liquidator and 2.5% to minters… But that’s assuming liquidator is refunded for the gas… if he isn’t then the min loan size maybe should be increased or his proportion of the reward could be increased…
If it’s self collapsing, I don’t see a reason to keep it at 150%. I think Synthetix is well positioned to push this space forward, making it more efficient. Are we the bleeding edge or not?
yeah I know lol, amazing if it’s like 110% that would be probably a really efficient way to short it… On this, I do have another concern on the debt pool skew increasing significantly when iSynth are replaced with this. Probably the system would be at risk, given the lack of liquidation of escrow… but I’m thinking that sUSD shorts will go live before escrow liquidation, but hopefully there won’t be a significant lag between the 2 SIP’s going live… Any thoughts on this?
Well, we don’t have to replace iSynths right away, they could work in parallel for some time.
@bojan @KALEB When a liquidation occurs, synths need to be burned from somewhere. If we take the collateral out of the position and reduce its size without burning any synths, we’ve now got less collateral in the system with the same number of synths. The global c ratio has now gone down.
EDIT: Was thinking about SIP-97 and external collateral assets. I see what you are saying @bojan. I agree that this could be a legit improvement to the liquidation mechanism.
There is more complexity with respect to the min c-ratio though, since you can cycle your proceeds back into more positions. You can get 1/(1- (1/cratio)) leverage. So at 150% there is 3x opportunity. At 110% its 11x. We obviously can’t cap the positions per address because you can just send to another address.