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BSIP: 0077
Title: Require Higher CR When Creating / Adjusting Debt Positions
Authors: Abit More
         @shulthz
Status: Accept
Type: Protocol
Created: 2019-09-30

Abstract

This BSIP proposes a protocol change which aims to improve overall collaretal ratio (CR) of smartcoins.

Motivation

Risk-loving traders tend to borrow as much debt as possible with as little collateral as possible, which impacts overall CR of that smartcoin. Smartcoin owners would like to have a tool to counter this behavior.

Rationale

Requiring a higher CR for new debt positions would introduce a buffer thus would increase the stability of the smartcoin.

Specification

Add one parameter "Initial Collateral Ratio" (ICR) to each smartcoin asset, which can be updated by the asset owner.

When adjusting a position, apply BSIP30 if current CR is lower than ICR but not MCR.

Before the protocol upgrade:

when creating a new debt position
  require CR > MCR

when adjusting a debt position
  if new CR <= MCR
    require CR increased and debt not increased

when current CR <= MCR
  trigger margin call

After the protocol upgrade:

Require ICR >= MCR

when creating a new debt position
  require CR > ICR

when adjusting a debt position
  if new CR <= ICR
    require CR increased and debt not increased

when current CR <= MCR
  trigger margin call

Note: logic around target collateral ratio (TCR) is not affected.

Discussion

This BSIP introduces a new tool for smartcoin asset owners to fine tune their assets. Having an ICR greater than MCR would probably result in less risk-loving traders borrowing that smartcoin, thus may lead to fewer market activities and worse liquidity. It's up to the asset owners to decide whether to use this tool.

References

Copyright

This document is placed in the public domain.