Use Frontier Reserves to Pay Down Bad Debt

1

Proposal to Utilize Frontier Reserves to Pay Down Bad Debt

Summary

Utilize the Frontier reserves to reduce the bad debt on the account from the Inverse Finance Frontier price manipulation incident of April 2nd 2022, 0xeA0c959BBb7476DDD6cD4204bDee82b790AA1562.

Background

Frontier, Inverse Finance’s now-deprecated variable-rate lending market, accumulated reserves by taking a 20% fee on the interest paid by borrowers back when it was active. These reserves were/are in the form of DOLA, ETH, WBTC, YFI and xSUSHI. Shortly after the April 2nd 2022 exploit, the interest rate on ETH, WBTC and YFI was set to 0% to stop borrow (and supply) balances from accumulating further, so no further reserves accrued in these assets. Given the vast majority of current DOLA borrows on Frontier are bad debt, in April 2023 the reserve ratio set to 100% in order to direct 100% of borrowers interest to the reserves, this was to stop bad debt from artificially inflating on-chain fed revenue.

The current reserves in Frontier are the following:

Asset Amount USD
DOLA 225,908 ~$225.9k
ETH 9.763 ~$20.0k
WBTC 0.732 ~$27.1k
YFI 0.433 ~$3.7k
xSUSHI 313.15 ~$498
TOT N/A $277.2k

Execution

Given there is no liquidity available in the ETH/WBTC/YFI markets to withdraw, this proposal will need to first add liquidity (via bad debt repayment) in order to pull the reserves.

  1. Treasury pays down 9.763 ETH, 0.732 WBTC and 0.433 YFI of bad debt, bringing this liquidity into the markets
  2. Reserves of 9.763 ETH, 0.732 WBTC, 0.433 YFI, 229k DOLA and 313.10 xSUSHI pulled out of the markets into the Treasury
  3. Use 229k DOLA to repay bad debt
  4. The xSUSHI is sent to the TWG in order to be swapped to DOLA and used to repay DOLA bad debt.

Note: More DOLA reserves are pulled down than there are at the current time of writing as DOLA reserves are continuously growing (accruing interest). By the time this proposal is executed, there will be more than 229k available.

Results

This proposal will result in ~$280k of both DOLA and non-DOLA bad debt being repaid in total. The net impact on the DAO Treasury will be 0.

Please use the Bad Debt Dashboard to track and keep up-to-date with bad debt.

On-Chain Actions

  • Unwrap 9.763 WETH to ETH
  • repayBorrowBehalf the borrow balance of 0xeA0c959BBb7476DDD6cD4204bDee82b790AA1562 by 9.763 ETH, 0.732 WBTC and 0.433 YFI
  • Reduce reserves on anETH market by 9.763
  • Reduce reserves on anWBTC market by 0.732
  • Reduce reserves on anYFI market by 0.433
  • Reduce reserves on anXSUSHI by 313.10
  • Reduce reserves on anDOLA by 229,000
  • repayBorrowBehalf the DOLA borrow balance of 0xeA0c959BBb7476DDD6cD4204bDee82b790AA1562 by 229k
  • Send 313.10 xSUSHI to the TWG
  • Wrap 9.763 ETH
3 Likes
2

why not just mint INV ( equal to the amount of Bad debt ) and distribute it to the affected users with a vesting period , so that team can focus on future products and expansion of Firm,

1 Like
3

That does not solve the accounting issue in the Frontier markets caused by the bad debt, and IMO this would be highly unlikely to pass a vote in governance due to it be extremely dilutive to current INV holders.

1 Like
4

As it is fees from the old Frontier users why not use it to pay back users bad debt (from down up or top down) so they might come back and be active on the new platform?

Edit: or maybe the IOUs makes more sense, at least a portion of it

5

Edits made to correct some calculation/logic mistakes

1 Like