B.Protocol announces v2 platform for DeFi liquidations
DeFi service B.Protocol announced plans for a new version that will improve the liquidation of undercollateralized loan positions on lending platforms.
The protocol revealed that the upcoming v2 is based on a white paper for a novel Backstop automated market maker (B.AMM) written by a couple of anonymous community members.
According to a blog post published by B.Protocol founder Yaron Velner, the v1 design that utilized professional liquidators to share profits with users instead of miners was not sufficient to tackle the capital inefficiency problem.
Centralized exchanges such as Binance, which offer leveraged trading up to 100 times user deposits, but the leverage ratio on decentralized exchanges (DEX) rarely exceeds five times. This significantly lower leverage limit is despite the massive liquidity pool available to DEX platforms.
For Velner and the B.AMM white paper authors, the poor leverage limit on DEXs forces lending platforms to be conservative with their loan collateral factors. Indeed, with high slippage and tight spreads on AMMs like Uniswap and SushiSwap, liquidation on DeFi lending platforms appears restricted to flash loan arbitraging.
Lending platforms like Maker utilize a system of market-maker-keeper responsible for executing liquidations. These keepers have been the focus of scrutiny during black swan events like Black Thursday back in March 2020.
B.Protocol offering a platform as the solution to this, allowing users to provide liquidity for possible liquidations via an automatic rebalancing protocol that converts collateral for debt repayment.
According to Velner and the B.AMM white paper, the rebalancing process will be based on the Curve Finance stable swap invariant for asset pricing. While the stable swap invariant is designed for correlated asset pairs like Dai (DAI) and Tether (USDT). B.Protocol v2 will expand it for uncorrelated pairs like DAI and Ether (ETH). By using an external price feed like Chainlink, B.Protocol asset pricing can be generalized in U.S. dollar terms.
According to the B.AMM white paper, the proposed platform for high leverage DeFi liquidation can handle up to $1 billion worth of liquidation per month.
The announcement also revealed that DeFi lending platforms can increase their collateral factors by up to four times on the B.Protocol v2.