Venus V4 Risk Fund and Shortfall Handling Deployment
Introduction
Venus Protocol, in its constant pursuit of innovation, is proud to present an upgraded solution for Shortfall and Risk Fund handling. This document outlines the mechanics, stages, and rationale behind the new system to effectively manage shortfalls in Venus V4. By integrating automated income allocation with a token converter, we envision a decentralized, transparent, and efficient mechanism that addresses the challenges associated with shortfall accounts.
Risk Fund and Shortfall Management in Venus V4
Overview
Shortfall accounts have been a challenging aspect of decentralized lending protocols. Recognizing the importance of addressing this issue, Venus V4 introduces a Risk Fund for each pool. A predefined percentage of protocol revenue is allocated to this fund, ensuring solvency coverage. When a borrower’s shortfall is detected, the system steps in to prevent further debt accumulation, making use of the risk fund reserve for debt coverage via auctions.
Deployment Roadmap
Stage 1: Foundation - ProtocolShareReserve, RiskFund, and Shortfall Contracts
Objective: Basic shortfall management, with certain operations remaining manual.
- Funds, collected from market interest reserves and liquidation income in isolated pools, will be periodically directed to the ProtocolShareReserve contract via VIPs.
- Within these VIPs, the ProtocolShareReserve contract will distribute a portion to the RiskFund contract. Remaining funds proceed to the Venus Treasury.
- Simultaneously, the Core pool continues its operational cycle undisturbed:
- Market reserves move to the Treasury.
- Liquidation income goes directly to the Venus Treasury.
Stage 2: Transition - Automatic Income Allocation
Objective: Shift from manual VIP-initiated transfers to an automated system.
- A revamped ProtocolShareReserve contract is introduced, capable of applying customizable rules for income distribution.
- VTokens in both Core and Isolated pools, as well as the Core pool’s Liquidator contract, receive upgrades. This ensures automatic income channeling to the ProtocolShareReserve contract, rendering VIPs redundant for this process.
- Public access is granted to the releaseFunds function within the ProtocolShareReserve contract. However, manual conversions in the RiskFund contract are maintained.
Stage 3: Automation - Introduction of Token Converters
Objective: Replace manual token conversions with automated token converters.
- The deployment of RiskFundConverter and XVSConverter contracts facilitates the transformation of underlying tokens to USDT and XVS, respectively.
- An upgrade to the RiskFund contract sees the removal of the swapPoolsAssets function, further streamlining operations.
Concluding Remarks
This enhanced approach to managing shortfall accounts and risk reserves exemplifies the commitment to maintaining protocol robustness, prioritizing community interests, and sustaining operational liquidity. As we venture further into this journey, we invite our community to engage, critique, and contribute, ensuring a brighter and more secure future for all Venus Protocol communities.
If there is enough interest in this proposal, more technical details will be shared.