Potential applications for backstop DeFi primitive

B.Protocol aims to give better incentives to liquidators in the DeFi ecosystem, and the hope is that as a result a backstop DeFi primitive will be formed.

The ideal backstop primitive will be able to perfectly execute liquidations. More formally, will always be able to convert asset A to asset B in return of a fixed discount on market price.

Close to ideal backstop primitive will give rise to many applications, more stable stable coins, synthetic assets, better leverage for lending platforms, etc.

The purpose of this thread is to collect an ideas from the community on what are the currently most urgent and useful DeFi applications that could benefit from it.

(*) This is not necessarily applications that B.Protocol will implement, but rather what kind of applications could be built atop of it.


Thanks Yaron! It is great to see a place to collect ideas.

One critical need for people seeking to use leverage (e.g. mint DAI in Maker) is to become more efficient. If the Collateral Ratio for liquidation is 150%, the most optimal used ratio should be around 151%, to gain maximum efficiency. However you would be liquidated very fast and lose all that efficiency.

A great new primitive would be to create a Common Pool for participants to take loans out: it would allow to avoid liquidation as it could be managed in a more dynamic, automated way. This would be accomplished by creating a “Super Account” that manages Collateral Ratio more dynamically. Instead of users depositing into Maker, they would deposit into this account, which could be held close to the limit and therefore be more capital efficient
Participation in it would require a fee and maybe some upfront collateral as a liquidity backstop. Why would you participate? you avoid liquidations and get more capital efficiency (higher leverage, on a safer way). Yearn seems to be doing this for their vaults, i.e. managing the collateralization ratio dynamically.

Some other protocol or party could take the short side of this and provide the insurance for a fee. I am pretty sure there would be a strong market for this, more so than for being more efficient at liquidations. In the end, we want to avoid liquidations while still being the most capital efficient we can.


great idea, that brings value to B.protocol.

Possible basic application is create pool for flexible purpose (i.e. DAO liquidator, loyal user protection, insurance…)
I think the Layer2 implementation is most needed right now, the only question is whether it is feasible given that the positions are on other protocols.