Disable using BALN and OMM as collateral

Proposal discussion WIP: OIP
#1

There have been few incidents recently in other money market protocols where high volatility assets were manipulated to exploit the protocol. In order to prevent such situations, early contributors would like to propose to disable using BALN and OMM as collateral on Omm. Thus, we will be proposing OIP 12.

In addition, early contributors would like to bring up the following topics and hear the community’s opinions, which can be voted in through another OIP afterwards:

  1. Initially when BALN and OMM are disabled from being used as collateral, liquidation threshold will remain at 0.325 so users currently using OMM and BALN as collateral aren’t liquidated immediately. However, eventually these assets should have liquidation threshold of 0. How long of a grace period should be given to the community? We think 3 months is enough time for users to put on additional collateral if they need to and we can reevaluate afterwards. I am curious if the community has an opinion on how long the grace period should be. Currently, there are 7 wallets with a total of $3400 (OMM and BALN) that may be liquidated if liquidation threshold were to become 0.

  2. Currently, 0.4% of daily OMM emission is going to the OMM supply market. Since OMM won’t be used as collateral anymore, it doesn’t make sense for the protocol to incentivize people to supply OMM. We would like to propose getting rid of OMM emission going to the OMM supply market and redirecting it to the DAO fund. Community members have expressed opinions in reducing the overall OMM emission to the market, so this may be a good start.

  3. Instead of completely getting rid of the OMM market completely, we thought opening up the OMM borrow market may be a good idea, so a regular supply/borrow market can exist for OMM, similar to BALN, without OMM incentives.

3 Likes
OIP 12: Disable using BALN and OMM as collateral
#2

This makes sense as we’re seeing many exploitation in the space due to low liquidity of the tokens. It might even make sense to burn the 0.4% emission.

#3

Think moving it to the DAO fund is equivalent to burning in general, but do you think burning is better than sending it to the DAO fund?

1 Like
#4

I think they ultimately give the same result. OMM “burning” is just better for marketing I guess. I personally think it’s better to direct the OMM to the DAO fund. Once burnt, there’s no getting those funds back. Those funds may be needed down the line for the likes of marketing initiatives/bug bounties/partnerships etc.

#5

I’m not sure of the specifics of how OMM or BALN could be targeted, but I assume it’s due to their low liquidity. It was hence definitely a wise decision to enact OIP12 and remove potential targets. Hopefully once BTP kicks in, and the protocol grows in size, they can be added back as collateral options.

Also completely agree with that OMM going to the DAO. I definitely think that OMM is best directed to the DAO fund rather than burnt. It’s a good first step to reducing emssions.

Perhaps discussion on further reducing emissions or directing OMM from elsewhere can be initiated in a separate topic.

I think 3 months is enough notice for investors. DeFi protocols are constantly on the move and people need to regularly monitor their positions. Protocols can’t be expected to wait around on users that invest and walk away when it comes to DeFi

2 Likes
#6

I would also agree OMM going to the DAO fund instead of OMM supply / burning it would be a better option.

The DAO can always decide to burn this later if they really wanted. I believe it would be best used for marketing promotions or incentives for example rewarding users with OMM from the DAO fund for supplying BTC to the protocol rather than redirecting rewards from other supply markets, LPers or stakers.

Once OMM emissions reduce this could be a useful tool.

3 months isn’t a long time but in the crypto defi space it is so I would agree that it is plenty of notice in this case.

2 Likes
#7

Maybe monitor the 3 month grace period and schedule an extension decision (based on amount of wallets still in danger of liquidation) closer to the end date?

Rerouting 0.4% Omm emission to DAO fund seems responsible.

Enabling the Omm borrow/supply market afterwards makes sense as community members may want to borrow Omm and use it to stake + (enhanced) vote.

2 Likes
#8

Thanks for the input guys.

Overall, it seems like there is a support for

  1. Moving OMM emission to the DAO fund
  2. Opening up OMM borrow market

Regarding 3 months grace period, community can collectively revisit 3 months later to decide whether extension makes sense at that point perhaps.

1 Like
#9

Haven’t done a deep reading. Just my thoughts:

Agreed, governance token shouldn’t be a supported collateral.

  1. If it’s not too complex maybe linearly decreasing threshold during x months? (And displaying this somehow in UI). This way liquidation wouldn’t be so black and white?

  2. I would direct OMM emissions to ICX supply (so voting power feature is incentivised for bOMM holders).

  3. Why would someone borrow OMM? Could be useful for nodes to temporarily increase their voting power without buying? Any other use case you can of?

1 Like
#10

  1. I think the conclusion so far is to revisit this in 3 months. Perhaps this is something that can be implemented after 3 months.

  2. Interesting suggestion. I think encouraging people to supply ICX may work as well. However, we have heard from the community that in general they want to see more OMM emission being burnt, which is where this would be heading if it is sent to the DAO fund.

  3. Yes, whoever want to take advantage of bOMM such as boosting their own/other’s validator for rewards can decide to borrow OMM

1 Like