PIP-50 Update Insurance Mechanism

Abstract

This PIP would change the current insurance mechanism to be more gentle for borrowers and liquidated positions that have insurance elected.

The new insurance mechanism would be 2.5% on debt drawn and a 5% liquidation penalty on the outstanding debt plus interest at the time of liquidation.

Background

Currently, users that elect insurance pay 5% on debt drawn and a 25% liquidation penalty on debt plus interest outstanding at the time of liquidation. These users with insurance elected have 72 hours to repay the debt, interest, and 25% penalty before the NFT is auction.

The new model would charge only 2.5% on debt drawn and only a 5% liquidation penalty. The window to repay the debt, interest, and liquidation penalty would still be 72 hours. If the user does not repay within this window the insurance coverage would expire and the NFT would be auctioned.

Recently BAYC #9217 was liquidated but had the insurance option selected. We feel it would be fair to retroactively apply this new insurance mechanism to that one NFT only. The user would be eligible to receive his NFT back by paying his debt, interest, plus a 5% liquidation penalty back to the DAO and avoid it going to auction.

Specifications

For insured borrows: Update debt draw fee from 5% to 2.5% Update liquidation penalty fee from 25% to 5% Keep the repay window to 72h Allow the recent liquidated BAYC #9217 to benefit from the updated parameters