How Balanced handles Black Thursday events

Financial markets were in turmoil on Thursday, March 12, 2020 as governments around the world scrambled to prevent the spread of COVID-19. The US stock market (Dow Jones) dropped 10% — the 5th-largest drop in history — Bitcoin dropped 37%, and Ethereum dropped 42%, leaving investors and consumers in shock as uncertainty about the pandemic and its impact on the economy dominated headlines.

The Dow Jones, Bitcoin, and Ethereum charts after the price plummeted on Black Thursday.
The Dow Jones, Bitcoin, and Ethereum charts after the price plummeted on Black Thursday.
The markets after Black Thursday

What would happen to Balanced participants?

On March 12, the price of ICX dropped over 44%, from $0.30 to $0.167. Before we analyze how Balanced would react, let’s go over the rules:

  • If you drop below the Mandatory Collateral Ratio, your collateral is locked until the ratio is back above 400%
Before the drop, Bob maxed out the collateral ratio at 400%. After the drop, the ratio is 224%, so his collateral is locked.
Before the drop, Bob maxed out the collateral ratio at 400%. After the drop, the ratio is 224%, so his collateral is locked.
Bob’s balance before and after Black Thursday
  1. Repay at least 110,000 ICON Dollars to increase his collateral ratio above 400%.
  2. Wait for traders to repay his debt when they sell ICON Dollars in exchange for ICX collateral.

What would happen to the price of ICON Dollars?

Based on this scenario, we can assume demand for ICON Dollars will increase as people try to pay back their debt and access their collateral. Higher demand leads to a higher price, which isn’t good for a stablecoin. To counteract an increase in demand, Balanced must increase supply.

How does this help ICON?

Financial markets — especially cryptocurrency markets — are driven by human emotion, and days like Black Thursday cause excessive panic. Balanced supports the price of ICX because no one can panic sell: ICX collateral is locked until the price recovers or people rebalance their collateral ratio.

Balanced is a DAO on the ICON Network that creates tokens pegged to real-world assets.

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