Discussion: Adjust Stablecoin Rate Parameters on Aave v2 Ethereum

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Monet-supply initiated a discussion about adjusting interest rate models for stablecoin assets on the Aave protocol to better balance supply and demand, specifically proposing changes for low volatility, redeemable stablecoins. The proposal received mixed responses, with some support and collaboration offers, but also concerns about the risk associated with a proposed 90% optimal utilization rate and questions about the timing of implementing changes.

The discussion initiated by Monet-supply revolves around the interest rate models for stablecoin assets on the Aave protocol. They observed that despite a decline in borrow demand and a significant decrease in utilization rates, the interest rate models have remained largely unchanged. They suggested that certain rate models may benefit from adjustments to better balance supply and demand, referencing a rate model analysis framework and update proposal by Block Analitica to Compound1.

Monet-supply proposed changes to rate parameters for low volatility, redeemable stablecoins, specifically USDC, TUSD, BUSD, USDP, and GUSD. They also proposed increasing stablecoin optimal utilization rates from 80% to 90% to improve efficiency further. For low volatility stablecoins, setting 90% optimal utilization rate can help improve market efficiency without adverse impacts on risk or rate volatility. Other more volatile stablecoins with more frequent utilization spikes can maintain their existing target utilization unchanged1.

The proposal was met with a positive response from MatthewGraham, who offered to collaborate with Llamaxyz to create the payload, conduct a peer review with Bgdlabs, and guide the proposal through the governance process. However, Pauljlei raised concerns about the 90% optimal utilization and the risk associated with it, especially if supply is concentrated in a few users. He also asked for more details on how the max borrow rates were decided2,3.

In response, Monet-supply explained that USDC and USDP have been operating with a 90% optimal utilization rate without significant periods of over-utilization. They also clarified that the risk to Aave protocol is reduced as USDP, BUSD, and GUSD are not currently supported as collateral. They further explained the composition of supply positions and how the max borrow rate was decided5.

The discussion concluded with Bayesiangame expressing support for the move in general, considering the changing rate environment. However, they questioned why not wait until V3 to deal with smaller stable coins, when clear supply caps relevant to the market cap of the tokens can be implemented6.

Posted a year ago

Last reply a year ago

Summary updated 2 months ago

Last updated 06/12 00:43