In recent days, Vires Finance has been experiencing serious liquidity issues due to the insufficient market for USDT and USDC. Hence, liquidity providers couldn’t able to withdraw their assets. Besides, The 1M USDN released through the vesting period each day has increased the instability of USDN and caused a depeg of the asset. The liquidity crunch has returned due to the 40% APY rate of interest paid out. New deposit flow was not enough to increase the liquidity but only served as a way to pay off the interest.
Options to solve repayment issue on Vires Finance
Vires Finance has proposed 3 options to the community to solve this looping issue:
- Keep the system as it is.
This option actually includes doing nothing. This way vesting will restart however there is a potential risk of leading to another depeg, risking the possible insolvency of USDN and loosing of everyone’s funds.
- Look for new funds.
This option includes trying to attract new investors with marketing. This way, the system may attract enough liquidity to pay the daily interest and sustain an acceptable utilization rate.
- A Full Restart.
This option includes repaying all users by fully resetting Vires Finance. This way everything may start again with new, safe, and sustainable markets with built-in protection from a future liquidity crunch.
Decision: A Full Restart
Vires Finance’s strategy has always been Improve Trust > Improve liquidity > Sustain the platform. However the team of the platform declared that attracting new depositors, is no longer the correct goal to focus on. So the second part of the strategy as known as ‘Improve liquidity’ is no more concerned.
The new strategy was planned to be completed step by step:
- Making all users whole
Simply, all users will get a full repayment. The interest APR will be lowered. The peg of USDN will be defended. Locked LP tokens will be unlocked early.
- Building the new Vires and developing the system
This step includes creating new markets. Adaptive withdrawal, borrowing limits, and non-borrowable collateral will continue to be applied.
- Sustaining the ecosystem
The last step includes launching new projects in the following months. Examples are PowerDAO, Waves School, Waves Camp and Waves Exchange Launchpad.
What are the new terms on Vires Finance?
Following that discussion brought up, a new voting for the governance of the protocol started and it was passed with the approval of the majority of the community on September 5, 2022. The passed plan of the voting comprises of
- The maximum APR for USDC and USDT is reduced to 2%
- All depositors are going to get 5% bonus if they convert their assets to USDN
- A limit of daily 100K USDN for the vesting of USDN has applied
- Deposits of the USDT and USDC markets are paused
- Withdrawal of 100 to 500 USDN per account has allowed according to account size
Is it necessary to convert your USDT/USDC to USDN?
Currently conversion is only an option. You don’t need to make a conversion, if you don’t want to do it. However, it should be taken into consideration that the earlier benefit of getting high APY on USDT and USDC is no longer available.
Example of Converting your USDN/USDC to USDN
Let’s go deeper with an example to clarify the current situation:
Let’s say you have 10K USDT/USDC deposited to Vires Finance.
You have an option to convert them into USDN. This conversion can not make partially and it need to be full. So the total amount of combined USDT/USDC will be converted.
When you do that, you are automatically given a 5% bonus of USDN, which makes your total balance 10.500 USDN. However, you cannot withdraw your total USDN amount right away. The system limits every account to make a withdrawal of 100 to 500 USDN per day.
Calculation of Daily Withdrawal Limits on Vires Finance
The calculation have two simple rules;
- If you have less than 50K USDN in your vesting, you withdraw 100 USD per day;
- If you have more than 50K USDN in vesting, you can withdraw 1/500 of your total vested funds per day
Vires Finance noted that these rules are tentative and subject to market conditions and Vires DAO has a strong will to repay its users as soon as possible with an embracive approach. They asserted that the ultimate goal remains to make all users whole and they will keep this as their singular priority over all other matters. Lastly, they left the door halfway open for possible further solutions such as introducing dynamic adaptive vesting limits, vesting through SURF tokens, creating new markets, and unlocking LP tokens depending on the community discussions and market conditions.