Curious how everyone would feel about applying a gentle interest rate curve below 80% utilization (e.g. scaling linearly from 0% APR at 0% util to 4% APR at 80% util).
Utilization has consistently remained around 80%, resulting in spikes that make rates unpredictable for borrowers. It’s also created a discrepancy between the average lending APY over a given time period (e.g. 30 days) and the one prospective lenders most frequently see when looking at the UI.
Applying this interest rate curve could create an equilibrium utilization rate further from the kink where rates jump up dramatically, improving the user experience for borrowers and attracting more lenders.
I like the idea. The zero interest below 80% however is the value add for the user. Perhaps rather than starting at 0% UR it could start at 50% UR and reaches 4% interest at 80% UR
Love the proposal! Have we modeled out the lending APR differences from this proposal? Would be great to see exactly how much better lending APR would have been historically.
Would also like to see this from the borrowers perspective. a huge value prop for borrowers is 0% borrowing which would cease to be the case
The Utilization Ratio fluctuates as lenders and borrowers respond to changes in market conditions. It is difficult to minimize volatility without making any sacrifices.
Due to the unfavorable current conditions, none of them have any incentives to remain in the market. This adds further complexity and puts additional pressure on users’ monitoring abilities.
In my opinion, providing more favorable pricing for borrowers when scenario 1 is valid doesn’t contribute significantly to the value proposition of the product.
Not sure I like that. It would be great for lenders, but it also makes the value proposition for borrowers less clear. 0% loans is a great selling point. I get it- the current unpredictability of the rate isn’t great for borrowers either. In fact, my leveraged FRAX position is in the red- I’ve paid more in interest than it has earned.
Maybe as an alternative we could implement a penalty/fee for any borrow that causes utilization to go over 80%, paid by that borrower? That might make a borrower think twice about opening a position that would impact the overall utilization.
Fair point. One thing we could consider is giving 100% of collateral staking yield to the borrower to increase their yields in order to compensate for the interest.
More often than not, rates spike due to withdrawals, not borrows.
Is this additional yield flowing to depositors to the yield routed to depositors from the strategies ?
If so, then the overall deposit yield may exceed 5% at the kink. For example, USDT earns 1.02% with an interest rate of zero, increasing the interest rate to 4% at the kink generates a yield of 5.02%. A compelling deposit yield. However, the elasticity of users who are in leverage positions needs to be considered. A gradual increase in interest rates, maybe two stage implementation, would be a more cautious path forward.