Gauntlet Interest Rate Recommendations for WETH and WMATIC on v2 and v3

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Gauntlet proposed adjustments to WETH interest rate parameters to encourage Emode borrowing against LST collateral, potentially increasing Aave's revenue and reducing LST risk profile. However, the proposal faced disagreements and led to further suggestions, including lowering WETH Uopt on Ethereum v3 from 90% to 80%, adjusting WETH Slope 1, and delaying the snapshot to move WMATIC Slope 1 to 4.3%. The community chose option 1 from Gauntlet's snapshot, reducing the slope 1 for WETH on all v3 to 3.3% and lowering the base rate to 0 for WETH to drive utilization to Uopt. Gauntlet confirmed the execution of these changes in AIP-327 and AIP-340.

The online forum discussion revolved around a proposal by Gauntlet to adjust the interest rate parameters for WETH on various platforms, with the aim of encouraging more Emode borrowing against LST collateral. This could potentially generate an additional ~$1m in revenue for Aave and reduce the current risk profile for LST. However, MarcZeller disagreed with the recommendations of setting slope 1 much lower than staking APY yield as it could lead to equilibrium above optimalRatio, decreasing overall protocol revenue and available liquidity. Instead, MarcZeller proposed tracking reference yield for LSTs and adjusting the slope1 parameters algorithmically to a range targeting LST yield.

TokenLogic and ChaosLabs also expressed concerns and suggestions, leading to Gauntlet proposing to lower WETH Uopt on Ethereum v3 from 90% to 80% to double the available WETH for liquidations during increased volatility. They also planned to put up a snapshot to adjust WETH Slope 1 on 2023.09.11. They suggested lowering slope 1 on all v3 to 3.3% and removing the base rate of 1% on all v3, excluding Ethereum v3. They continue to recommend option 1 to facilitate LST recursive strategies due to lowering LST yields.

The discussion concluded with Gauntlet planning to delay their snapshot to move WMATIC Slope 1 to 4.3% due to WMATIC utilization moving towards the kink. They also plan to put up a snapshot to lower STMATIC and MaticX non-emode LT next week to mitigate risky stablecoin borrowing. They will provide more analysis in that proposal. Gauntlet has posted snapshots for the WETH IR slope 1 updates and WETH Uopt updates. Voting on these updates will begin in one day and will last for three days.

The community has chosen option 1 from Gauntlet's previous snapshot, which reduced the slope 1 for WETH on all v3 to 3.3%. However, the language in the snapshot did not specify that option 1 also intended to lower the base rate to 0 for WETH to drive utilization to Uopt. To clarify this, a new snapshot specifically for lowering the base rate to 0 for WETH on v3 markets has been released [Gauntlet - 10].

In the latest update, Gauntlet confirmed that AIP-327, which sets the WETH slope 1 to 3.3% on v3 markets (excluding Ethereum v3), has been executed. They also mentioned that the recommendation to lower the WETH base rate to 0 has proceeded with Option 1 from the snapshot for V3 Arbitrum and Optimism. These platforms have higher LST TVL and are expected to be more impacted by this proposal compared to other V3 markets. The AIP is published and can be accessed for more details. Gauntlet announced the execution of AIP-340 and thanked the community for their participation12.

Posted 4 months ago

Last reply 2 months ago

Summary updated 2 months ago

Last updated 08/12 04:39