Proposal: Adjust Interest Rate parameters for stablecoin liquidity pools

Governance
1

Problem
The current stablecoin (USDM, DJED, iUSD) liquidity pools are marked as ‘volatile’, meaning it’s much cheaper to borrow until the utilization rate reaches 45%. At this threshold, borrowing typically stops. Due to this structure, borrowers refrain from taking new loans when the utilization rate (UR) is high because of elevated interest rates, while depositors earn lower returns as the interest on loans remains low.

Proposed Solution

  1. Raise the base interest rate from 3% to 7%, ensuring borrowers pay a minimum of 7%, thus increasing returns for depositors.
  2. Increase Slope1 from 7.5% to 20%. This charge applies when the utilization rate is below the optimal level, resulting in higher interest rates for loans below the target rate.
  3. Adjust the Optimal Utilization (OU) rate from 45% to 80%. The increase in Slope1 aims to utilize more capital, making borrowing more attractive.
  4. Increase Slope2 from 300% to 700% to discourage long-term utilization above 80%.

Sharing a chart of borrow interest rate changes based on UR:

This modification targets pools where stablecoins are the supply asset and will apply to both existing and new pools. Additionally, new stablecoins added by the DAO will have the same parameters. This will not impact existing loans.

  • Approve
  • Disapprove
  • Abstain
0 voters
1 Like
2

It’s a good Idea!
I think once we reach a certain TVL milestone we should rebalance the pool and make it more enticing for Borrowers because 7% base rate 0% utilization is a bit high for borrowing activity but Ideal for rising liquidity on stables.
However for the moment it will serve as very competitive rates on Cardano and that’s why I am for the rate change up👍

3

During the bull market 7% base rate is OK, in the bear will probably be too steep for the borrowers, but it can be updated again.
The more important part of the proposal is to increase the optimal UR, I would have gone with 70-75%, but 80 is still good for me. This will make the supply APR to go to probably 15%-20% consistently, which is great for a stablecoin.

1 Like
4

I was also wondering why 7% as the base case. Not saying 7% is bad, but what’s the reasoning? Protocol revenue?