VIP 5 and VIP 6 will introduce new speed controls (Venus reward distribution) for the Venus platform.
The community hoped that these speeds could be set individually for both the supply and borrow side of the platform. We have since learnt that this is not the case and supply/borrow must both be equal ie. 50% Supply/ 50% Borrow. This is a technical restraint written in the original code of COMP, from whom we are a fork. This cannot be changed at present.
VIP 5 states that XVS distribution will be increased to 3000 XVS per day. This would mean 1500 for supply and 1500 for borrow. This is great in theory as it represents an approximate 12 x current rewards for XVS suppliers and borrowers.
In previous discussions, the community has expressed concerns that XVS should not be allowed to be borrowed. This is because those shares can then be short sold on the market to create sell pressure and push the price down.
In response to this the team created a borrow cap on XVS of 450k XVS. This was the minimum cap that could be implemented at the time due to this amount being borrowed (as per JL).
The problem the community has with this is that of those being borrowed, approx. 75% are being borrowed by 1 entity. This means that of the 450k borrowed, they will share the 1500 XVS rewards. This creates an APY of over 100% for borrowing XVS.
This can be seen as an exploit rewarding mainly just 1 entity with a disproportionate amount of rewards.
We have 3 options to discuss:
- Can these proposals be delayed until we are able to write a V2 code base so that the 50/50 element can be removed and go along with the community consensus?
Pro: Fair distribution of awards
Con: Will probably take a long time, meaning XVS holders lose out on the supply rewards in the meantime.
- Can we remove the borrow cap for XVS?
Pro: It means anyone is free to borrow XVS and the awards of fairly distributed
Con: This would allow XVS to be borrowed and short sold
- Could we change the interest model to ensure that the interest charged on borrowed XVS is more than the rewards themselves? (This has been done by CZ with BNB on Binance and is charged at 99% APY)
Pro: This would make borrowing XVS very expensive and not worthwhile for anyone trying to take advantage. It also means this interest would be paid to XVS suppliers effectively moving all 3000 rewards to suppliers.
Con: May not be technically possible on an individual asset