Rebalancing and the retirement process

How does Balanced guarantee the price of its assets? No matter the price elsewhere, you can always sell them on Balanced for their true value. Let’s explore how this works.

If you purchase Balanced Dollars for $0.90, you can retire it on Balanced for $1 of ICX collateral, minus a 0.5% fee. This burns the bnUSD, removing it from circulation.

When a retirement occurs, a group of 50 borrowers have their position “rebalanced”: their debt is reduced, and an equivalent amount of their collateral sold.

How much will each person be rebalanced by? It depends on their percentage of debt within the group, and the amount of bnUSD being retired.

For example:

Bob buys 1,000 bnUSD for $0.90 on an exchange, then retires it on Balanced.

The group of borrowers to be rebalanced have a combined debt of 100,000 bnUSD.

Alice is one of the borrowers, with a loan of 10,000 bnUSD (10% of the group’s debt). When the retirement happens, Alice’s debt is reduced by 100 bnUSD, and $100 of her collateral is sold to Bob. The amount will be displayed to Alice in the position details section.

Retirements cost more (0.5% fee vs. 0.3% for swaps), so they should only occur if bnUSD falls below $1.

To minimize the impact on borrowers, a group’s debt can be rebalanced by a maximum of 1% each time: if the group had a combined debt of 100,000 bnUSD, only 1,000 bnUSD could be retired in one transaction. And after being rebalanced, every other borrower will take a turn before it happens again.

Got questions about the retirement process? Chat with us on Telegram.

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

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