Thanks for all the work! I’m wondering if there’s a type-o in the formula in F8 G8 & H8. I think it’s supposed to be 3 * StDev but it’s using row 7, so 3 * 2 * StDev → 6 StDev?
I’m trying to wrap my head around this data. Is it correct that this is basically looking at the changes within a day, and not so much a trend over a longer duration?
The initial reason why we increased the gap between start c-ratio and CC / Liq Threshold (150–>200 and 125 → 115) is because over a time-span of multiple weeks or months, deposits would slowly crawl to these levels. What we did back then analysis wise is to make theoretical mints every day, and follow the c-ratio deposit over time (hourly) from the mint up to the date of analysis. This showed that with 150/125/110% we would have a significant amount of deposits reaching liquidation at one point. This was matching reality at that time (Dec 2020). Signers were trying to redeem many deposits themselves to avoid getting liquidated, which was stressful and at significant cost.
What we essentially did with the updated 200/115/110% is increasing the gap between start C-ratio and CC to a size that based on historical price data would make the chance to reach liquidation very low.
Couldn’t find everything back but some old references here:
Maybe we need to do a similar analysis again?
@daramir regarding the proposed thresholds. I think you’re reasoning is still with the assumption that signers try to prevent liquidations because of the cost right? The way I see it, basically 4 parties can loose / win in a liquidation.
the notifier: The bigger the gap between the buy % and the actual c-ratio, the more he gains, since he’s receiving 50% of the remaining bond. This is a loss for the signers. The lower the thresholds, the lower the remaining bond will be → the signers loose less to the notifier.
the auction buyer, if not coverage pool: he’ll buy it at once economically profitable. This will directly be the case for high c-ratio deposits that are timed-out during redemption. This can cause high signer losses → the lower the start c-ratio, the lower the c-ratio during a potential time - out, the lower the signer losses
the auction buyer, coverage pools: the coverage pools will only buy a deposit at the end of the auction, after 24 hours. This means it’s likely not economically profitable, so it will take a loss here. The lower the thresholds, the higher the loss will be.
the signers: the signers can loose in an auction, because the bond that was lost in auction was more valuable than the BTC they got back and/or the notifier fee.
Now here’s an interesting part. The lower the CC/Liq threshold, the lower the bond $ value loss and notifier fee will be. In fact, a liquidation can even become profitable. Therefore I think we maybe not even need a gap between CC & Liquidation?
CC & Liquidation threshold set to 101%. 0 gap. A liquidation is started, and during the auction the c-ratio drops to 95%. This means the coverage pool will buy 95% of ETH value $ and the signers get 100% of BTC value, so the signers won 5%. The notifier fee is 0, and the coverage pool took a hit of 5%.
CC & Liquidation threshold both set to 101%. A liquidation is started, and during the auction the c-ratio increases to 105%. This means likely an auction buyer will buy somewhere between 101 - 105% of ETH value $ and the signers get 100% of BTC value, so the signers lost 1 and 5% to the auction buyer, and the notifier fee is between 0 and 2%.
So assuming the price movement is normally distributed during an auction (50% going up, 50% going down) a signer would no longer care and would let the liquidations just happen. I think this is an important factor to investigate.
There’s 2 parties here that are only taking value out of the tBTC system, the notifier and the auction buyer. This is value loose for the signers, which is offset by KEEP rewards.
By reducing the CC and Liquidation threshold we are reducing these losses to the system. Yes, they come at a cost of the coverage pools, but these are offset by KEEP rewards. The alternative is that they come at a cost of the signer, which also requires KEEP rewards.
I think the sum of KEEP needed would be lower with lower thresholds, since there is less value flowing out of the system to the notifier and auction buyer.
My initial feeling is that something in below ranges would make sense, in line with what Ben is suggesting.
- C-ratio 140 - 150%
- CC 101 - 105%
- Liq 101 - 105%
And to do some more research on:
- How often would a liquidation be triggered at these levels & historical price data
- What is the expected c-ratio development during an auction / 24 hours → to estimate coverage pool cost / signer cost
- Estimate the effect of concentrated minting data. Typically when capacity opens up, this is directly re-minted resulting in a concentration of deposits at 1 date and at 1 c-ratio. This could eventually lead to a group of deposits entering liquidation at the same time.