What is pieLabs working on now

Lending protocol liquidations are a very important security part. And in order for the protocol to be truly decentralized and independent from the team, liquidations must be accessible to everyone, and in order for the participants in the protocol to play the role of liquidators, they must have an economic incentive to do so.

For this, there is a liquidation bonus that is paid to liquidators for the liquidation of someone else’s underwater loans. In BSC and Polygon networks, it is 8%. This means that upon liquidation of a $ 100 loan, the liquidator will receive $108, having an instant net income of $8. How it works.

But this is if you do not take into account overhead costs, such as gas fees or commissions of the tokens themselves for the transfer. We wanted to tell you about these commissions. In BSC networks, the token model is very popular, when for any transfer a token takes a commission and the liquidator pays this commission 2 times — the first time when he buys this token, and the second time when he makes a liquidation.

Thus, the liquidator incurs additional overhead costs. And if the amount of overhead costs exceeds 8% for liquidation, the participants in the protocol simply lose their economic interest in playing the role of liquidator. And if no one does the liquidation, then the loans sooner or later become unsecured.

To prevent this, we are currently working on managing such fee tokens.

How it will look:

At the first deposit to the pool, the protocol will determine the size of the transfer commission (the difference between how many tokens were sent and how many were received). When this token is borrowed, the borrower’s available collateral is reduced by double the amount of this commission, and upon liquidation, the bonus is increased by double the amount of the commission. Thus, the increased liquidation bonus covers all additional costs to the liquidator and the liquidator receives a net 8% bonus as in the liquidation of any other token without a transfer commission.

The implementation of this mechanism will allow the DeFiPIE to successfully work with commission tokens and not worry that loans may become unsecured.