Move Bad Debt from the current debtors to the BNB bridge exploiter account to eliminate remaining shortfall

Proposals
1

With the current market conditions there’s an opportunity to finish clearing all of the Venus shortfalls.

I am proposing Venus moves the most significant bad debt from the current debtors to the BNB bridge exploiter account. The total bad debt moved to the BNB bridge exploiter would be worth approximately $34,7M. By shifting specific debts to the BNB bridge exploiter account, we can effectively liquidate the outstanding debts.

Specifically, the following debts would be moved:

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At the end of the process, the BNB bridge exploiter’s total debt will be increased by (approximately) $34.7M, and the listed debts will be removed from the current debtors.

The current collateral of the BNB bridge exploiter is $138.3M. Its total debt is $110.5M. So, after completing the proposed movements, the bad debt (debt not covered by any collateral) will be approximately $6.9M ($34.7M + $110.5M - $138.3M). This bad debt will be repaid with the income generated in the previous liquidations of the BNB bridge exploiter, as it was proposed here Proposal: BNB Bridge exploiter account remediation - Proposals - Venus Community

The health rate of the BNB bridge exploiter after completing the proposed movements will be approximately 0.74 ($138.3 * 0.78 / $145.2M).

The proposed movement of the debt can be achieved with a VIP performing the following actions:

  1. Increase the Collateral Factor of BNB, above 100%. To do that it would be needed to upgrade the Comptroller implementation, removing the current check that avoids that.

  2. Upgrade the implementation of the MoveDebtDelegate Enable MoveDebtDelegate for BTC and ETH Shortfall Account contract, swapping the order of the core actions done in that contract: it will first borrow on behalf of the BNB bridge exploiter (taking advantage of the new enough borrowing power), and then it will repay the debt.

  3. Invoke the function moveDebt in the MoveDebtDelegate contract, one time per debt to move (see above)

  4. Restore the original implementation of the MoveDebtDelegate contract

  5. Restore the Collateral Factor of BNB, to 78%

  6. Restore the original implementation of the Comptroller implementation

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2

Let’s go, let’s clear the debt :slight_smile: Very positive news!

3

lfg!! Venus to the moon

4

Eliminate debt and move to sound operations.

5

0x…bec Liquidation Plan

Summary

This proposal suggests using the risk fund for a liquidation of the BNB Bridge 0x…bec’ balance to partially work towards resolving the protocol’s shortfall. For this, the converted risk fund will be used as follows:

  1. Redeem the vUSDC or vUSDT from the Venus markets
  2. Transfer USDC or USDT from the vTreasury to the governance contract.
  3. Replace the liquidator contract with a temporary contract that directs 100% of the liquidation fees to the liquidator.
  4. Use the governance contract to liquidate the USDC or USDT.
  5. Redeem the seized vBNB following the liquidation event.
  6. Convert the claimed BNB to USDC or USDT.
  7. Restore the original liquidator contract.
  8. Receive the converted assets in the vTreasury.
  9. Supply the assets in the Venus markets

The end result of this process will be the use of the on-chain risk fund to liquidate the 0x…bec collateral. The seized amount will be converted and supplied in the Venus markets from the vTreasury to be used as part of the risk fund for a future liquidation or repayment.

Details

The protocol’s risk fund was converted to USDC and supplied in the Venus market as per VIP-253 and VIP-262. Following the execution, 326,081,636 vUSDC (7,606,575 USDC as of March 6, 2024) will be used in a liquidation process to partially repay the USDC debt. It will collect an equal amount of BNB collateral, plus the 10% liquidation fees, and exchange this BNB for USDT or USDC to store in the vTreasury. Additionally, it will supply in the Venus markets for proper treasury management, making it available for use when needed.

Currently, the liquidator contract allocates 50% of the liquidation fees to the liquidation executor, with the remaining 50% directed to the protocol’s vTreasury. To direct all liquidation fees towards the shortfall’s repayment, a new temporary liquidation contract is necessary. This contract will grant all fees to the liquidator, allowing for a more efficient process. It will be created and then restored within the same transaction, ensuring the protocol’s normal liquidation process remains unaffected.

  • Note: It’s important to consider that 53,116.65 USDC could not be sent from VIP-253 due to the current state of the converters. This amount will be kept in the Risk Fund and used in a future proposal.

Also, this process could be repeated in the future using the end balance from the vTreasury, if market conditions favor another liquidation process.

Conclusion

In conclusion, the expected outcome of this liquidation is to reduce the debt from the 0x…bec account, convert, store and supply an equal collateral amount plus all liquidation fees for a future repayment or liquidation depending on market conditions to completely eliminate the remaining shortfall of this account.

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