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AIP-25: Migration from AF1.0 -> AF2.0

Background:

Since the launches of Concentrated Liquidity (CL) for major DEXs on the BNB chain and the shift in farming rewards to the new CL pools, the yields and liquidity on the old UNIv2-type pools steadily declined over time, which caused the profitability of our LYF farms to also decrease.
With AF2.0 money market now operating in a stable manner and AVv3 operations getting ready to scale, it makes sense that we migrate lending assets in AF1.0 over.
With the migration of the lending assets from AF1.0 -> AF2.0, AUSD will also be affected as the AF1.0’s ibTokens are used as collateral for AUSD.

Rationale:

We believe the migration to AF2.0 will have the following benefits:
  • Overtime, the yield and liquidity will continue to go down on the old pools, and some of them will reach an unsafe level and have higher risk of bad debt due to low liquidity.
  • By migrating over to AF2.0, we would lower maintenance costs and efforts so devs will have more time to focus on AF2.0 related tasks.
  • Increasing lending liquidity for AF2.0 will help support scaling for AVv3.

Implementation:

The migration will be done in phases, starting from first sunsetting AUSD and then migrating lending pools, starting from low utilization assets.
The high-level timeline is shown in the figure below:
image

Sunsetting AUSD

To sunset AUSD, we will do the following:
Step0: Notice period
  • There will be a notice period of ~ 2 weeks for users with AUSD positions to close them out.
  • Users will be able to do this via two methods
    • Buy AUSD from an open market on Ellipsis and return the debt (market price, limited liquidity)
    • Use our stable swap module to return the AUSD debt (Always at $1, unlimited liquidity)
Step1: Force Close Position
  • Any remaining AUSD positions will be forced close.
  • Force Closing will work in the following way:
    • User’s collateral is sold via stable swap (BUSD and USDT will be converted 1:1, while BNB collateral will first be sold into a stable coin and then converted 1:1 via the stable swap module)
    • Any remaining collateral will be returned to users

Migrating Lending Pools

Timeline is tentative based on how fast we past this proposal

Batch #1: Start immediately after AUSD sunsetting

  • BTCB
  • ETH
  • USDC
Total Batch #1 farming TVL: ~$411k USD
These assets have very low utilization and few profitable farming opportunities on AF1.0. Moreover, we have BTCB and ETH savings vaults on AF2.0 which will generate borrowing demand for these assets. Thus, they make for perfect candidates to migrate over right away.

Batch #2: ~ End of October / Early November

  • BNB
  • USDT
  • CAKE
Total Batch #2 farming TVL: ~$16.5Mn USD
You can see all the active farming positions in batch#2 here: https://docs.google.com/spreadsheets/d/1K7Dgjaui0Mc_D4gsvjN_9oeoN8pXz4FgoRgLyrGR18M/edit#gid=0
  • Majority of the positions are in major pairs: USDT-WBNB, BTCB-USDT, ETH-USDT
  • Avg. Leverage borrowing BNB ~ 2.2x
  • Avg. Leverage borrowing USDT ~3.3x
For batch#2, these assets still have usages on AF1.0 and there are still people farming these pools profitably, so for these assets, we have two options to proceed:
Option1: Keep them as is to allow users to continue farming on UNIv2
  • For this option, we will not migrate the batch2 farms now but will do it in the future when
    • Liquidity in the underlying pools drops to an unsafe level
    • Lower yields resulting in user naturally exit these positions
    • The team also reserve the rights to adjust the leverage and liquidation thresholds for these remaining pools down to reduce the risks to lenders
Option2: Migrate them now
  • This option would migrate batch#2 over to AF2.0

Batch #3: By the end of November

  • BUSD
  • ALPACA
Total Batch #3 farming TVL: ~$10.5Mn USD
Given that BUSD is being sunsetted by Binance, we will not be migrating it over to the AF2.0. However, we will just close down the remaining farming positions related to BUSD.
Similarly, ALPACA will not be migrated to AF2.0 unless we add an ALPACA farm there.
For each batch, we will implement the following steps to migrate.
Step0: Notice Period
  • there will be a notice period (~1 week) before we start executing each batch, where users can close their positions and withdraw their lending assets. After that, we will start implementing the steps below:
Step1: Disable opening new positions on the relevant farms
  • Relevant farms refer to farms that contain the migration assets in the pair. For batch #1, any farms that borrows BTCB, ETH, and USDC in the pairs will be closed.
  • For example, a BTCB-BNB farm, any positions farming this pool that borrows BTCB will be closed during batch one migration. BTCB-BNB farming positions borrowing BNB will be closed during the Batch 2 migration.
  • For a full list of the farming pairs to be included in each batch, you can visit here: https://docs.google.com/spreadsheets/d/1_SRmiXkjZdjFnVg3nBVTkihEDny_ePP1lN3dIGgIvHs/edit#gid=1262310802
Step2: Close any remaining LYF positions
  • Any remaining positions on the relevant farms will be closed
  • Debts will be repaid to the lending pools
  • Any remaining values will be returned to the farmers wallet addresses
Step3: Move lending assets over to AF2.0
  • After all the LYF farm are closed, all assets will be migrated and deposited into their respected lending pools on AF2.0
Step4: Claim ibToken
  • Users whose assets were migrated will be able to claim their ibToken for AF2.0, the assets will then be deposited into their subaccount.
  • Please note that users will start earning lending interest on AF2.0 right away, and can claim their ibToken anytime. Claiming ibToken will allow users to be able to withdraw their assets from AF2.0

Voting

This AIP will be a single choice voting with two voting options:
Option1: Execute migration plan for batch #1 and batch #3 only.
  • For this option, we will not migrate the batch2 farms (~$16.5Mn) now but will do it in the future when:
    • Liquidity in the underlying pools drops to an unsafe level
    • Lower yields resulting in user naturally exit these positions
  • The team also reserve the rights to adjust the leverage and liquidation thresholds for these remaining pools down to reduce the risks to lenders.
Option2: Execute migration plan for all batches.

Resolution:

  • The community voted to execute migration plan for batch#1 and batch#3 only.

References: