TLDR: Agoric OpCo is building a dutch auction liquidation contract for Inter Protocol which will allow users to bid directly for Vault liquidations. This is a robust, battle-tested liquidation mechanism which also would be significantly faster to implement and operate than the originally communicated liquidation launch plan.
Details:
The release of the Vaults code will allow Inter Protocol to expand user minting of IST beyond centralized and/or bridged stablecoins. This is a core part of Inter Protocol’s value as a product to the ecosystem.
A successful overcollateralized vault mechanism requires a method for the protocol to liquidate vaults when collateral prices decline. The original plan for Inter Protocol as outlined in previous designs included a local AMM that would function initially as the destination for these liquidations. In this design, the protocol would own sufficient liquidity to ensure that liquidations could proceed with minimal price impact. This AMM would function as a product on its own beyond Inter Protocol Vault liquidations, and serve as a focal point for liquidity on the Agoric chain.
However, launching an AMM is a major undertaking which is not strictly necessary for IST. Moreover, the Vault contracts separate liquidation into a separate contract which can be changed/upgraded. Therefore, it’s possible to speed the launch of Vaults by creating a new liquidation contract which eliminates the need for the AMM in the short term.
Receiving requirements from multiple stakeholders including the Inter Protocol Economic Committee and advisors from RMIT, as well as consultation with operators from MakerDAO, Agoric OpCo has proposed the following design for the initial liquidation contract: Descending Clock Auction for Vault Liquidation · Issue #6641 · Agoric/agoric-sdk · GitHub.
This liquidation design is a dutch auction which occurs on a regular basis per collateral type and contains methods for users to bid directly or create bidding agents to bid on their behalf across multiple collateral types. Users could specify bids at exact prices or as a discount to oracle prices. More detail is available in the Github issue linked.
This model also simplifies the Reserve contract, which previously needed the ability to mint IST against held assets and manage LP positions. In this new model, the Reserve will simply hold additional assets and manage accounting for liquidation shortfalls. New capabilities for asset management can be added to the Reserve later if they are desired.
Posting here as we would love to hear feedback from the community on this plan. We understand the eagerness for Vaults to go live and want to ensure that’s done as rapidly as safely possible.
Thanks!
Rowland