Problem : Current ADA liquidity pools are labeled as ‘volatile’, which means it is significantly cheaper to take out loans before reaching the optimal utilization rate of 45%. With these parameters, borrowers stop borrowing at the Optimal Utilization (OR) rate. Due to this setup, borrowers are unlikely to take new loans when the Utilization Rate (UR) is high since interest rates are elevated, while depositors receive relatively low yields due to the loans’ low interest rates.
Proposed solution:
- Increase the base interest rate from 3% to 6%. This will result in borrowers paying a minimum interest rate of 6%, leading to higher yields for depositors.
- Increase Slope1 from 7.5% to 20%. Slope1 is a charge for interest while the utilization rate is below the optimal rate. This will lead to a higher interest rate for loans under the OU.
- Increase the Optimal Utilization (OU) rate from 45% to 65%. With the Slope1 increase, we aim to employ more capital as it will become more attractive to borrow.
- Reduce Slope2 from 300% to 100%. Slope2 is a charge for interest while the UR is above the optimal rate. This adjustment will lead to borrowers still borrowing when UR > OU, but with a reasonably high charge.
You can find rate comparisons and more details in this spreadsheet
This change is only targeted on pools where supply asset is ADA.
This change will be applied to all existing and new pools.
Existing loans will not be affected.
More discussion can be found on Adjust Interest Rate parameters for ADA liquidity pools
- Approve
- Disapprove
- Abstain
will be great!!!