VIP 24.2: Markets Reset

(cross-post from our medium blog for discussion)

A solution to Vires Finance liquidity crunch that makes all depositors whole and resets the system immediately to full working order.

What happened to VIP-24 ?

The proposal VIP-024 Migrate all USDT and USDC > 1M to separate markets was defeated this weekend. It suggested that a portion of whale accounts (>1m) would be separated into a different market until sufficient liquidity returned to the protocol. At that point, they would be able to withdraw with rewards at a reduced APY of 2.5%.

There were many different opinions within the community, some:

  • Depositors understood and saw the opportunity to get out of Vires
  • Depositors didn’t like the idea a specific group was to be penalized
  • Vires Stakers weren’t happy about the impact it would have on their APY (currently >120%)
  • Depositors saw there was merit to this but wanted changes

The reason for the a different version of the proposal proposal is clear: The longer this liquidity squeeze goes on, the more severe the problems become and the harder it becomes to solve.

Withdrawal limits frighten away new users, and the interest burden of the bad debt taken on by Sasha and the APY of Vires stakers continues to climb to unsustainable levels.

3 problems and 3 worsening effects:

  1. Withdrawal limits — kills consumer confidence
  2. Bad debt interest — drains funds that could otherwise be better used
  3. gVires APYs — snap up debt repayments instantly at the cost of locked depositors who get whatever is left.

The options

We need to take drastic measures to change the situation while we can. We have a reset button in the liquidation of the bad debt collateral, but there are a few ways we can use it. The goal of using it would be for all parties involved to avoid losses and, ideally, even profit.

We want to discuss the options:

Option 1: No action

The 3 problems remain, Withdrawal limits continue to float around based on the number of repayments made daily, with the majority of depositors unable to withdraw or move in and out of pools freely. No certainty about the number of withdrawals you can make a day. At the same time, the FUD machine continues rumours of Vires stealing everyone’s tokens and users not getting paid back. This route potentially leads to insolvency and poses a huge threat to the USDN peg once the liquidation starts.

Option 2: The system fully resets, liquidates all the bad debt ($500m), and repays all lenders with USDN.

This was our initial thinking after the defeat of VIP-24; it is good for a few reasons:

  • Every user is repaid all their collateral.
  • Full functioning is restored to the protocol immediately, meaning new users can come in, withdraw, deposit, and borrow
  • The bad debt is gone, and with new adaptive borrow/withdrawal limits in place, the same situation can never happen again

However, there are a couple of significant problems with a complete reset of the lending markets back to 0:

  • New users and small accounts are impacted unfairly.
  • Setting markets back to 0 after a large liquidation event like this could severely impact Vires Finance’s ability to attract new users with good yields.

Option 3: Implement the button, liquidate all the bad debt above 250k for each account (~$400m of $500m debt) and repay larger lenders with a vesting period.

This option is now the preferred option. It comes with all the same benefits as repaying everyone, but with some added benefits:

  • ~100m would stay in the protocol, meaning gVires holders would still get a reduced APY
  • Utilisation would be restored to a healthy level at ~75–80%
  • New and smaller accounts would therefore be able to withdraw/borrow freely without any vesting period.
  • All deposits liquidated (Above 250k) would receive a 5% liquidation bonus for the inconvenience.

The Reset Button

We want to propose liquidating 400m of the 500m in bad debt(Option 3).

With that collateral, the system would repay all deposits above 250k in each account, with a vesting schedule of ~420 days(1m per day). The vesting is to protect the USDN peg. In addition, each liquidated amount would get +5% as a liquidation bonus.

VIP 24.2: All above 250K converted to USDN + 5%

How this works

  • Sasha would liquidate the bad debt collateral and immediately repay all depositors.
  • All affected depositor’s funds would be repaid in USDN to their accounts with tokens released over a defined vesting schedule plus a liquidation bonus of 5% on top of it.
  • Users can withdraw USDN at any time based on the vesting schedule.
  • gVires holders will be additionally incentivized and continue to get their APY untouched during the transitional period of one month following proposal approval.

:shrimp: What it means for suppliers of USDT and USDC < 250K in total

Healthier market utilization, larger withdrawal limits.

:whale2: What it means for suppliers of USDT and USDC > 250K in total

  • You’ll be repaid in USDN for any USDT & USDC supplied above 250k in total via vesting to your wallet with a bonus of 5%.
  • The unlock of the vested USDN happens linearly during ~420-day vesting period(1m USDN in total unlocked per day).
  • If you have a significant debt in USDC/USDT/USDN/EURN, the debt will be settled automatically.
  • If you have a significant debt in BTC, ETH or WAVES, part of USDC and USDT will be converted to regular USDN supply, part of USDC and USDT will be converted to vested USDN to maintain a decent level of your account health.

What it means for VIRES stakers (gVires holders)

  • gVires APYs would remain intact until the end of the transitional period 1 month after proposal acceptance through additional incentive in USDN equivalent.
  • gVires APYs would then reduce to ~20–30%, still massively outperforming any comparable DeFi yield.
  • The protocol will be reset, and full working order will be restored, markets will become healthy and bad debt will be gone.
  • Organic growth of the protocol can continue, while still maintaining attractive Deposit APYs.

What it means for markets

This means lifting limits to withdraw, deposit, import, export, and borrow once again, restoring confidence in the protocol.

VIP 24.2: Markets reset to healthy state

Why Now?

We believe the fastest way for things to return to normal is to repay users and start all over again with better parameters. Then, those that want to withdraw will be able to do that, and those that want to stay in the ecosystem can stay. That choice comes down to every wallet.

Decentralization and Self-sovereignty are key values at the foundation of DeFi; we must continue to educate on the state of the situation and provide the choice to you, the users, as we have throughout this crisis.

We’ve seen other centralized lending platforms brought down entirely by bad debt, unable to pay their users back, and taking considerable steps to avoid it. However, the benefits of over-collateralization in decentralized protocols mean transparency and an opportunity to reset. There is still funding to repay all deposits and reward Vires stakers for their support. However, despite already taking various actions as laid out in the masterplan, the situation is not improving fast enough to restore confidence and bring liquidity.

With the improvements to Neutrino’s tokenomics, the new recap token (SURF) will make USDN the strongest algo stablecoin, able to arb back to peg and recapitalize in times of undercollateralization. Add a renewed Vires system back to working order with new limits; the ecosystem can begin to thrive again. Now is the time to play that card when the market is down, and there are still exciting opportunities in the Waves ecosystem. Then, as the market turns and renewed interest in DeFi returns, we can leverage our battle-tested protocols and a clear commitment to crypto’s values as evidence that we are ready to thrive once again.

Feedback to us, we’re listening!

We want to get feedback from the community on an option that would reset the system, but that comes at a cost. The one constant that has guided the team’s thinking has been the feedback from the community. For this, we thank you all.

And you can finally explain - how and why debts of 500 million. became hopeless? Personally, I really want to know this. Holder gvires. I vote against another divorce.

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The disdain shown by the Vires team for gVires owners is unreal. The reason that the APY is currently in the 130-140% range is that THE PRICE OF THE TOKEN HAS COLLAPSED by -80-85%. APY is a measure that is relative to the CURRENT token price. gVires daily payouts are also down -85%. Now both are going to crash further thanks to The Great Vires Reset. The Vires token is a full-blown rugpull. The team needs to fix its poor attitude and offer SERIOUS incentives to people who are locked into gVires, such as: significant USDN compensation, restoration of the original borrow APR (80%), and increased protocol share in all markets (at least 15%).

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Don’t sneak down 1M to 250K Scammers

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I have to study the vip-24.2 article more to get a good grip on it.

However, my first thought is why does the team present such drastic measures now instead of tweaking vip-24 a bit with the aim of finding a middle ground with g-vires stakers?

The sentiment seems to be that vip-24 could be accepted if the protocol share gets the increase gvires stakers have suggested.

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Because they are like crying baby.

I will definitely sue the team for largest ponzi crime if the team do the proposal.

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Bravo! I agree with you.

Correctly!

What the rule says is that it should be partially liquidated: sell usdn to pay the usdt/usdc that the accounts owe, but it doesn’t seem right to them because it devalues ​​their currency. So they want to turn everything upside down: sell usdt/usdc and buy usdn, to pay with that misconceived currency (it has been seen that at least it should have oracle as the variables, to avoid the initial problem: people who bought usdn very cheaply (depeg), came here at 1:1 with others, took usdt/usdc and left the account).

If the problem were really the opposite: abandoned account that supplies usdt and borrows usdn, how long would it have taken to liquidate it?

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Some people are falling for the team’s propaganda that we have to “save Vires” when this is all about saving Sasha at our own expense. Do not be suckered into a feeling of coming together, community, whatever. Something does not “have to be done.” If Sasha can’t pay his debt, he will eventually get liquidated when his account health hits 0. That’s how the protocol is supposed to work. Not everyone bailing him out because he doesn’t feel like paying anymore. If you own gVires, you need to be willing to die on this hill. This proposal is worse than the last one.

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Option 1 will end in tears, as soon as Sasha’s account health goes below 0% USDN will depeg. We do need to find a solution to keep in control.

Option 2 will not work either, since it will be much harder to kickstart the platform back to proper operation without the initial users/liquidity

Option 3 could work. It has some similarities to vip24-2. Where smaller depositors will exist in the platform as it was. No impact on <250k accounts. Larger accounts will be stuck with vesting usdn for a longer period of time, which is also how it currently is.

With the current withdraw limits larger accounts won’t see their money anytime soon. It’s not sustainable to keep paying the high (paper) yields on these accounts. <Fact.

With vip-24 Sasha would still be in full control of usdn liquidation and repayments.
With vip-24.2 larger accounts can liquidate the usdn at their own merit with a maximum of 1m/day.

I’m torn between vip-24 and vip-24.2 option 3.

I actually prefer vip-24.2 at this point since the large debt actually moves away from vires. Any possible USDN depeg will be managed by the community as a whole.

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Isn’t 1m USDN per day released to the market not too much? SURF has not yet been proven effective in recapitalization.

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So what it does really mean for gVires holders:

For example you bough VIRES tokens for avg price of $60. You have 2 options;

  1. Sell all tokes as they unlock (during ~1 year) with price of $7 (the price after the proposal passes) and get 15% return of your investment.
  2. Keep relocking for up to 5 years to get your money back (if no other proposals come to cut you even more).

The initial proposal (vip-24) would sound more attractive if it would increase the protocol share of gVires holders to 15-20%

No vires holder respecting himself would approve the current proposal.

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tbh gvires holders will regain a solid foundation for future growth of the platform. so rewards aren’t guaranteed. But you have to look at everything on balance of probability as well.

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No, no, no, please do not allow this proposal to pass. This punishes everyone who deposited >$250k in USDC/T. Very unfair. If VIRES keeps on punishing med-large sized investors, they will lose even more trust and not be able to significantly grow. Please do not do this. (Personally for me, over half of my funds will be affected. I am hardly a crypto whale. It took me a decade to save this money from working, I did not plan for it to be locked up and converted to another asset with less than a 5% return, seeing as how I will have to pay fees to gradually it convert/buy it back as well).

If Sasha is having trouble paying back his debts, I would accept a lower APR overall to receive my funds back sooner. But please do not lock them up like this and force us to accept a different coin as repayment.

At the very least, there should be an option for users to decide whether they want to be paid back in USDN. Although others may accept USDN, I do not. Really, this proposal should be split apart so that if smaller investors want to be paid back in USDN, they are given that option as well. Rather than just force the larger investors to accept the change involuntarily.

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I’m tired of this. Let’s go for option 3.

Yeah, gvires profits will drop, and price will tank, but I didn’t hit the “lock again” button to turn it off, when I claimed, so I’m stuck for a while longer. (Seriously, fix that shit, I should have to turn it on, not off. Whoever made that, is evil, pure and simple, hoping people do what I did.).

Yeah, token price will tank, it’ll suck… Losing income, will definitely suck. But if Sasha can’t pay the debt, under the conditions he promised, then let it get liquidated as soon as possible so we can get back to a functioning platform. I don’t mind getting my USDC supply as USDN. Waves is a good platform, and I unless Sasha goes bankrupt from the decisions he made himself, it’ll survive some more turbulence. It’ll be good for neutrino holders too, with their current 0.000001% APY, with a little bit of depeg. Besides, wasn’t that what nsbt was intended for anyway? To uphold the peg? Or did I “waste” my money there too, with promises that were changed after I locked money for 5 years? lol

A few things definitely need to change with the platform tho. We need seperate markets based on risk assesment… We can’t have everything in one pool. Say we add WXB or something similar stupid. I’m not willing to lend to my money, to people supplying WXB as collateral.

Oracle definitely needs to get done. The other “stables” aren’t stable either. They fluctuate as well. Even in “good times”, we can’t do 1:1, even if usdn was 100% stable.

Bunch of other things that needs to be done too, but I’ve written enough. One thing tho… Waves need to fix their attitude towards investors. The more you treat us as the enemy, the sooner we become it.

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I would also have voted for the previous proposal, if it was better, and not solely rewarding Sasha with 0% interest on the debt, so he’d make a fortune on it, while profits would be gone for the rest of us.

That’s not how we play.

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“gVires APYs would remain intact until the end of the transitional period 1 month after proposal acceptance through additional incentive in USDN equivalent.”

You call this “additional incentive”? Are you serious?

The interests of gVires holders don’t seem to be taken into account at all. Nor are investors in general. But since we were asked to discuss this proposal, I will tell you under what condition it could be accepted:

gVires APYs would remain intact until the end of the transitional period 1 year after proposal acceptance through additional incentive in USDN equivalent.
That would be fair.

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Under option 3, rather than repaying USDT/C deposits in USDN, then locking the USDN with a 1m/day unlock, we could allow up to 1m/day to to be paid with no lock. In addition, we could make participation voluntary. In this way, we do not have an outsized impact on gVires or LP income. After the “voluntary liquidation” has run its course, we can assess the condition of Vires and take further action if required.

This will not restore functionality of the Vires protocol as quickly as the original version of option 3, but will have an immediate incremental benefit.

In addition, this version may have a better chance at adoption since APRs are unchanged.

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Team treats as 80% of debt as bad debt.
It’s too drastic to deal with the problem.

By phasing 20% bad debt → 40% , 60% , finally 80% is acceptable. And the addiction is much particular in Alameda and some 10M-over-whale.

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