Adjust Liquidation Bonus of assets

  • What is Liquidation Bonus

When a liquidation occurs, a liquidator may repay some or all of an outstanding loan on behalf of a borrower and in return receive a discounted amount of collateral held by the borrower. This discount is defined as the Liquidation Bonus.

  • How does Liquidation Bonus work

The Liquidation Bonus amount impacts users’ willingness to participate in liquidation, as well the benefits/losses of the liquidator/borrower.

If the Liquidation Bonus is too low, it will disincentivize users from participating in liquidation. Without a timely liquidation, the borrowed assets’ value may continue to rise. If the collateral assets cannot cover the borrowed assets, an insurance claim will be initiated, and the compensation will be paid out from user funds staked in the insurance pool. This could be perceived negatively by users and hinder the growth of the project.

If the Liquidation Bonus is too high, borrowers will lose more collateral assets when their positions are liquidated. Because of the fear of capital loss, borrowers will borrow less to avoid liquidation. The Wing reserves depend on the interest paid by borrowers. Less borrowing leads to fewer reserves for buybacks, which negatively impacts WING holders and the project.

So we need to have a reasonable Liquidation Bonus, it is important.

Now the Liquidation Bonus of stable coin is 5%, and for unstable coin, it is 8%, do you think it is reasonable?

How do you think? Feel free to have your say!

In my opinion, 90% of borrowers do not care about the liquidation bonus, because they believe that liquidation will not happen to them.

Yes, but liquidators are concerned about it.

How can we get a reasonable Liquidation Bonus?

we have established a Liquidation Bonus Standardized Model. This model relates to Wing’s Asset Risk Model, focusing on the trading volume and fluctuations of relevant assets in the market.

Based on the application of the Liquidation Bonus Standardization Model, the Liquidation Bonus of each asset should be set as follows:

Chain Assets Liquidation Bonus
Ethereum ETH 5%
Ethereum USDT 5%
Ethereum USDC 5%
Ethereum DAI 5%
Ethereum WBTC 8%
Ethereum pONT 8%
Ethereum UST 8%
Ethereum PAXG 8%
Ethereum oneWING 10%
Ethereum pWING 10%
Ethereum xICHI 15%
OKExChain ETHK 5%
OKExChain USDT 5%
OKExChain USDC 5%
OKExChain DAIK 5%
OKExChain BTCK 8%
OKExChain DOTK 8%
OKExChain LINKK 8%
OKExChain UNIK 8%
OKExChain OKT 8%
OKExChain OKB 8%
OKExChain WING 10%
Ontology pETH 5%
Ontology pUSDT 5%
Ontology pUSDC 5%
Ontology pDAI 5%
Ontology pwBTC 8%
Ontology prenBTC 8%
Ontology pNEO 8%
Ontology pSUSD 8%
Ontology ONTd 8%
Ontology pUNI 8%
Ontology pYFI 8%
Ontology ONG 8%
Ontology WING 10%

The ETH’s price fluctuation is high, is it reasonable to decrease the liquidation bonus of ETH?

Since ETH has high popularity, good market liquidity, and the volatility parameter score of ETH is moderately high, much better than most.

Above all, the Liquidation Bonus of ETH is 5%.

Great! I believe the Liquidation Bonus Standardization Model will work well.

I’m agree with Yuki. If the liquidation bonus is insufficient for certain assets with poor liquidity, the liquidator will not be interested in liquidation.

ETH should be 5%, 5% is attractive enough.

Wing is getting mature and its operations should be more and more refined. This change is worthy of praise.

Although catastrophic systemic risks cannot be avoided, such changes can help reduce the risk of asset lost。

I have participated in other projects. Liquidation Bonus is different for each asset in Aave, it may be one of the important factors for its success.