[ARFC] BUSD Offboarding Plan

Governance
1

Title: [ARFC] BUSD Offboarding Plan
Author: @marczeller - Aave Chan Initiative
Dated: 2023-03-05

Abstract

After the ARC stage community discussions reached consensus.

This ARFC proposal outlines a finalized offboarding plan for BUSD on the Aave V2 Ethereum market. The plan aims to reduce the amount of liquidity in BUSD and encourage users to switch to other stablecoins. The plan involves modification of BUSD risk parameters. The plan will be enforced in a single AIP.

Motivation

Paxos recently stopped the minting of BUSD due to recent developments with the SEC. This will result in the circulating supply of BUSD trending towards zero over time. Therefore, it is necessary to implement an offboarding plan for BUSD on the Aave V2 Ethereum market.

The resulting APR cost of the plan, if enforced today, would be 101.25% for current borrowers, signaling them to repay without significant impact on their positions. If the reserve utilization reaches 100%, the resulting APR cost will be 210%.

The ACI has analyzed the vBUSD debt token holders and found that most top positions are relatively active addresses and are expected to manage their positions actively.

The ACI would like to express its gratitude to all participants for providing valuable feedback during the discussions and @bgdlabs for providing valuable tooling support for rateStrategy simulations.

Implementation

The offboarding plan will be carried out in a single AIP with the following parameters:

  • Decrease uOptimal from 80% to 20%.
  • Increase reserveFactor from 10% to 99.9%.
  • Increase base rate from 0% to 3%.
  • Increase slope 1 from 4% to 7%.
  • Increase slope 2 from 100% to 200%.

Process

The community has reached a consensus on this plan after valuable participant feedback during the ARC stage.

a Snapshot vote will now be published to allow Aave Governance to voice its opinion on the offboarding plan.

Disclamer

The Aave-Chan Initiative is not affiliated with or paid by Binance to publish this ARFC.

At the time of writing, Marc Zeller, the founder of ACI, Does not hold any BUSD.

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This proposal has been escalated to Snapshot stage

Voting starts Today.

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A brief update on the offboarding plan:

As anticipated, there has been a significant decrease in deposit and borrow positions prior to the AIP execution. Users foresaw the AIP and shifted their positions to borrow other stablecoins.

Currently, the available liquidity is $815k, which allows all aBUSD holders, except for the top holder, to exit overnight.

The top 5 variable debt borrowers (positions above $100k) possess healthy health factors and high-quality collateral (stETH, WBTC, wETH). If they choose not to exit their positions, they would likely face liquidation eventually without impacting the protocol’s health.

Thanks to the high reserve factor, the protocol has earned approximately $130,000 in BUSD and virtually over $200k in total, including unrealized earnings from current open borrower positions. The protocol continues to earn $10-20k per day.

So far, the offboarding appears successful, and the ACI does not recommend any further action to increase the APR for remaining borrowers at this time.

Our current suggestion is to adopt a “wait and see” approach for the next few weeks, allowing current borrowers to respond and close their positions.

If repayments remain low during this period, the ACI is open to further increasing the Slope2 parameters to encourage repayments more strongly or lead current borrowers to liquidation. It remains uncertain how long BUSD will stay liquid and maintain its peg.

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Thanks for the update. Makes sense.