I think a feature that can help to unfreeze faster the situation now and in similar situations is that a supplier be able to optionally withdraw it’s supply or part of it in a different token. That will give more usability to the borrower collateral: if the borrower can’t pay me in the token I supplied, because there is not enough liquidity of it in the ecosystem, I can optionally accept to be paid in the token he is using as collateral. At the same ratio used by vires. This helps both sides, as it adds another degree of freedom. And allows to alleviate liquidity pressures in the ecosystem.
I think in someway LP tokens were designed for easing this kind of situation. However, they don’t connect suppliers with borrowers, but instead, suppliers with speculators, and don’t resolve the problem of liquidity. Same happen with borrower liquidation. It requires a specific condition and again, this don’t solve the liquidity pressures in the ecosystem, thus leading to price volatility, even on stable coins.
For easing the liquidity problem we need a direct connection between suppliers and borrowers collateral. The suppliers can optionally mark to withdraw its supply on a different asset, and when this happen, borrowers will see that can pay part of its borrow with another asset. As they repay in this way, suppliers will see that they will be able to withdraw part of its supply in the alternative assets he marked.
An alternative implementation is to create some matcher that matches repayment orders with withdraw orders, based on a FIFO queue. This may be more complicated to implement, but probably is a more solid and flexible approach.
May be this second alternative could initially be implemented by introducing another kind of token, similar to the suppliers LP tokens, but on the borrower side. Then, add market pairs for each supplier and borrower token. The borrower token must be issued with the desired amount of borrow and an equivalent amount of supply from the chosen collateral (using the vires ratios between them). Then, supplier can exchange his LP tokens with the corresponding borrow-collateral token issued by a borrower. Notice that this uses market instead of a fixed rate, but still skips speculators intermediation, which is what alleviates liquidity pressures. And seems a quite easier way to implement the feature, as we rely on market matcher instead of having to implement a different. one. The only problem I see with this kind of implementation is that some vires exchange ratios between collateral and borrow assets, may change between issuing and exchanging, so orders probably need some kind of expiration, or issuing of borrower tokens need to add a margin of collateral that is returned to the issuer if was not used.
Just throwing possible implementations. Developers must judge what is easier to implement.