Hubble's First Stress Test (May 2022)

In this update, Hubble shares details about what happened during its first stress test and what the protocol learned from the experience.

Note: This article is not financial advice. Hubble Protocol does not endorse any tokens or platforms mentioned in this article.

Key Takeaways

  • The fallout from Terra's collapse affected the entire crypto market.
  • Hubble Protocol's smart contracts worked as intended during the event.
  • Updates have been made to increase the anti-fragility of the protocol.

Hubble recently experienced its first major stress test. Overall, the protocol operated as intended despite a few minor hiccups, and USDH remained fully collateralized and pegged.

USDH's price chart during the crash.

This update will share details about what happened during that time and what the protocol learned from the experience.

Join Hubble's Twitter Spaces on May 19th at 5 PM UTC to find out more.

The May 2022 Crash Brought Down Prices Across the Board

Crypto market prices fell precipitously between the 8th of May and the 12th as UST broke its peg, and the price of LUNA began slipping toward zero.

LUNA falls to less than a thousandth of a penny.

A Top 10 token had entered a death spiral. Rather quickly, contagion brought down nearly every crypto asset on the market.

BTC fell below $27,000.
SOL breached $40.

BTC and mSOL, Marinade's liquid staking token pegged to SOL, made up the majority of the collateral on Hubble. They were also affected by the market situation.

Consequently, when the price of BTC and SOL began to plummet, users began repaying their loans, and the system began liquidating positions that exceeded their maximum LTV ratios.

Chart showing Hubble instructions for repaying or borrowing loans.

Liquidations Increased as Prices Continued Dropping

As demonstrated in the charts below, more users were liquidated during this period than at any other time in Hubble's three-month history. About 77% of all Hubble liquidations occurred this May.

Accounts Liquidated

Liquidations since Hubble's launch.
Liquidations day by day during early May.

The dollar amount for liquidations also rose to all-time highs. In total, Hubble liquidated $1.7 million worth of debt over a few days.

Liquidations Dollar Amount

Dollar amount liquidated over Hubble's history.
Daily dollar amounts for liquidations on Hubble.

The Stability Pool Worked as Intended

Around 10% of liquidations were distributed to Stability Pool (now Stability Vault) providers as a reward for providing USDH to guarantee users' debts.

Using the bottom as a yardstick, users who provided USDH in exchange for liquidation rewards yielded around $170,000 in liquidated assets.

During this event, the amount of USDH in the Stability Pool was reduced to half the amount held in deposits at the start of the month. On May 1st, there were 6.4 million USDH deposited in the Stability pool, and on May 17th, there were 3 million.

Factoring in the USDH that was burned for liquidations, it can be surmised that 1.8 million USDH was withdrawn from the Stability Pool to repay loans.

Chart showing how much USDH was burned during loan repayments.

The Stability Pool provided a way for users to obtain USDH to repay their loans without resorting to the market. This may have reduced upward pressure on USDH's peg, since users were not draining DEX liquidity pools for USDH all at once.  

Liquidations Began Failing When Solana's Performance Declined

Degraded network performance was an issue for Solana during this time. Poor network throughput translated into invalid price feeds from our oracle, Pyth Network.

Message showing a transaction has failed due to an invalid price feed.

As a result, liquidations weren't going through, and there was a risk that some loans were close to being liquidated as bad debt.

Several positions crept above their maximum LTV ratio for borrowing.

This snapshot, taken every hour, shows one account with an LTV ratio that reached 110%.

Hubble's LTV histogram distribution at one point.

Thankfully, the market bounced when the smart contract liquidated this loan, and by then, it was overcollateralized. According to chain data, 100% of accounts liquidated were overcollateralized.

Measures Taken and Lessons Learned

Hubble has done two things that reduce the Solana performance/oracle situation affecting normal operations:

  • The contracts are now more generous about Pyth price validation (less strict about all prices).
  • The protocol no longer needs to fetch all prices at once, which was an artifact of Recovery Mode.

The community learned some valuable lessons that will help make sure liquidations run through more clearly during stress, and the protocol also learned a few things about its LTV ratios:

  • The 90% LTV is still OK if the protocol runs liquidations via the Stability Pool.
  • The 75% LTV for new loans is too conservative.

Join Hubble's Twitter Spaces this Thursday, May 19th, at 5 PM UTC to learn more about what happened.

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