Context:
DeFi and lending markets in particular experienced one of the biggest liquidation events in history. Fluid experienced
- No bad debt
- Highest trading day at $380M in volume and 10.8% market share on Ethereum
- Liquidations were processed smoothly
- Day with the highest fee & revenue
However, while Fluid processed liquidations smoothly with the highest liquidation thresholds and lowest liquidation penalties in the industry and automated withdrawal ceilings allowing for the highest security, UX was poor during high volatility.
Issues Identified
- Automated ceilings allow for the highest security in the lending market space, heavily limiting the losses in case of any black swan event, however, at the same time, it also limits the natural movement of capital during market stress.
- Users were not able to withdraw or move their positions during high volatility.
- New users were not able to migrate to Fluid because borrow limits were hit.
Issue mitigation
Increase withdrawal and borrowing limits:
Old limits on T1 vaults were:
Withdraw
- 25% (20% withdraw user, 5% extra reserved only for liquidations)
- 12 hrs
Borrow
- 20% borrow
- 12 hrs
New limits on T1 vaults are:
Withdraw
- 50% (45% withdraw user, 5% extra reserved only for liquidations)
- 6 hrs
Borrow
- 50% borrow
- 6 hrs
Old limits on T2, T3 & T4 vaults were:
Withdraw
- 25% (20% withdraw user, 5% extra reserved only for liquidations)
- 12 hrs
Borrow
- 20% borrow
- 12 hrs
New limits on T2, T3, T4 vaults are:
Withdraw
- 35% (30% withdraw user, 5% extra reserved only for liquidations)
- 6 hrs
Borrow
- 30% borrow
- 6 hrs
Issue Explanation:
Fluid automated ceilings allow for the highest security among lending markets that limit any potential damage to the protocol in case of the black swan event which was also highlighted by our auditors:
If I were a DeFi developer, then “my” project would definitely be something like Fluid (Vault or DEX). I love dynamic schemes, with dynamic limits, aggregated operations and something like that. My opinion is that such models are the future of DeFi and any “instant”, not limited operations with liquidity, fixed risk parameters, etc, are dangerous by design and should go to the past, only “fluid” schemes solve the problem to avoid abrupt market changes and keep both lenders and borrowers happy at the same time.
During high volatility and massive liquidation events, withdrawal limits were reached within a short period of time which did not allow users to withdraw or move their positions. This lead to poor Ux or even unnecessary liquidations. By expanding the withdrawal limits for the vaults that have been live on the market for a long period of time, we ensure that both liquidations and user-based operations can be processed simultaneously.
Conclusion
Increased limits for the automated ceilings for the battle-tested vaults will significantly improve UX while keeping the highest security standards for Fluid.