Trust the process
Sasha Ivanov is on the receiving end of a lot of criticism these last couple of months due to the liquidity crisis on Vires.Finance. However, whoever follows his actions closely, both on- and off-chain, must come to the same conclusion as I have;
- He has the best intentions for the ecosystem
- He is working hard to repay the debt he took on personally
- Repaying the debt is large and complex task to fulfill
- He is one incredibly smart cookie and knows what he is doing
It is my humble opinion that he deserves more credit for what he has done so far keeping the ecosystem from collapsing, and deserves more trust in continuing to do so.
It’s not that complicated
The issue on Vires.Finance today can be summarized in just two simple constructs;
- A borrowing loop between Vires and Neutrino allowed for an excessive and concentrated borrows position. This position caused uncertainty which caused a “bank run” drying up free liquidity.
In order to solve this, changes are either already made or announced. This problem is identified and it is quite easy to stop this from happening again.
- The excessive borrows position needs to be unwound in order to re-establish trust on Vires.Finance
In order to solve this, Sasha has to repay the debt, which needs to happen rather sooner than later. As a community we need support and enable him in doing this every chance we get.
VIP-24, a necessary evil
The proposal in question raised a lot of eyebrows. Before addressing the criticism, the community has had on this proposal. Let’s take a closer look at what the proposal actually entails, because frankly, it is quite a brilliant strategy.
The first act.
Due to the creation of separate markets for account balances below and above 1M USDT/C Sasha’s interest payments would go down significantly. I estimate that around 65% of USDT/C debt would be transferred to the newly created “deprecated” market.
In the current situation Sasha’s interest on his debt is;
37% APR on 515M = 520k / day.
You don’t have to be a financial genius to realize that over half a million a day in interest reduces the chance of the debt to ever be repaid in full. Even if it’s possible with that level of interest, at the very least it will severely prolong the effort to do so.
If VIP-24 would have passed Sasha’s interest on the debt would be;
[2.5% APR on 335M = 23k / day] + [37% APR on 180M = 182k/day] = 205k / day
The second act.
By lessening the burden posed by the high interest on the balances of Sasha’s debt a larger portion of his repayments will actually decrease his debt. This, due to the utilization dynamics of Vires.Finance, will gradually result in lowering the APR of the original market and therefor interest on this part of Sasha’s debt.
The third act.
Similar to how the borrowing loop spiraled out of control, the above dynamics will snowball the large debt into the right direction. Creating a healthy, stable and attractive lending market, like Vires.Finance was before the current issue. Sasha will continue his efforts to repay the debt under much favorable circumstances, filling in his promise to make everyone on vires whole again, which includes repaying the debt on the “deprecated” market.
Addressing and accommodating the critics
Because VIP-24 has a big impact on Vires.Finance, it will obviously have a big impact on the community. Various types of users will be impacted by VIP-24 and I would like to address most of them.
Most notably depositors with balances over 1M USDT/C on Vires will be directly impacted by VIP-24, because it is their APR that will in part get reduced to 2.5%. Some community members find it morally incorrect to reduce the APR of funds above 1M USDT/C and therefor voted against the proposal.
The truth of this matter is that most whales would rather increase their chances to withdraw in the future than to continue to earn paper profits while jeopardizing the platform in doing so. I have discussed this with whales that I know, this is not pure speculation. Also, Sasha already mentioned that he is in direct communication with these parties.
Protecting the whales sounds honorable from a moral standpoint but in this case, whoever voted against this proposal on the whales’ behalf potentially accomplished the opposite.
I already argued that lowering the overall interest on the debt increases the likelihood of it being repaid. Those who agree on that but disagree on making a separation based on account balances and would rather see an APR reduction across the board overlook the effect that this will have on Vires.Finance. Part of the solution is to make Vires.Finance work again, lowering yield will accomplish the opposite since we won’t be able to attract new users.
The users that locked up their supply under the old circumstances would have seen their terms being changed before their lock ended if VIP-24 would have passed. In my opinion this is a legitimate argument which has already been addressed by Sasha in telegram as well.
In order to accommodate the users with locked funds there are multiple solutions discussed that won’t have a negative impact on the platform.
- Unlock all accounts so that every user can reassess whether or not they want to lock their supply again in the new situation
- Create an unlock mechanism where users can unlock their funds against a fee, and make it the first month free
The best solution in my opinion is to unlock all accounts directly and give them the option to re-lock. It would mean that everybody can re-assess the new situation and op to re-lock if they choose to do so. At a later stage an unlock mechanism can be introduced separately from the current changes, since it is a solid idea which can generate additional revenue for the platform.
The gVires stakers
The most vocal fraction of critics of the new proposal have been the gVires stakers. Who will see their income decrease once APR is lowered for such a great portion of debt.
This is a difficult matter. On the one hand I believe gVires stakers are not entitled to guaranteed high APY. Their earnings consist out of a % cut of interest paid on the platform. Since total interest to be paid will go down so will their earnings. Interest payments have been unsustainably high. Demanding a continuation of a cut of an unsustainable interest is wrong. On the other hand, I do sympathize with them and feel middle ground could be reached somehow. gVires stakers are by definition long term investors in the platform and are to be taken in to consideration when discussing such a major decision.
My suggestion for a new proposal
I suggest a new proposal should be formulated by the team addressing the points above;
- Separate the markets based on the 1M USDT/C threshold
- Unlock all accounts directly and develop an unlock mechanism for future proposes later on
- Increase the cut for gVires stakers from 10% to 15% or 20%
No one should go for the blonde
I’m reminded of the bar scene of a beautiful mind, the one where Russell Crowe first came up with the Nash Equilibrium. This situation has a lot of variables that effect a lot of people.
- Some won’t like their APR getting lowered on supply
- Some feel the separation is morally incorrect
- Some will have a problem with unlocking accounts
- Some will have a problem with increasing gVires rewards
- Some will will believe gVires rewards are not increased enough
When voting on the next proposal we should all realize that like in a beautiful mind, we should vote on what’s best for ourselves AND the group, and if that means you don’t get the blonde? That’s unfortunate, at least you still get laid.