This proposal aims to update the rate curves for wstETH and ETH on the Liquidity Layer of the Fluid ecosystem and pauses ETH rewards on ETH Vaults.
Proposal
This proposal updates the rate curves for Wrapped Staked ETH (wstETH) and Ethereum (ETH) to better optimize the utilization and incentives and align with current market usage and activity on Fluid. The new rate curve of ETH will offer the same or higher APR than the current rewards program hence we propose pausing ETH rewards at this time.
Liquidity Layer
Current wstETH Rate Curve
Utilization 0%: 0% Rate
Utilization 50%: 15% Rate
Utilization 80%: 30% Rate
Utilization 100%: 150% Rate
Proposed wstETH Rate Curve
The new wstETH rate curve adjustments are as follows:
Utilization 0%: 0% Rate
Utilization 70%: 20% Rate
Utilization 90%: 40% Rate
Utilization 100%: 150% Rate
Along with the updated rate curve, this proposal updates the wstETH Market Fee to 10%.
Current ETH Rate Curve
Utilization 0%: 0% Rate
Utilization 70%: 2% Rate
Utilization 90%: 3.6% Rate
Utilization 100%: 100% Rate
New Proposed ETH Rate Curve
The adjustments to the ETH rate curve are proposed to mirror the new structure applied to wstETH, with rates designed to enhance the attractiveness of ETH lending and borrowing on the platform:
Utilization 0%: 0% Rate
Utilization 70%: 15% Rate
Utilization 90%: 25% Rate
Utilization 100%: 150% Rate
Vaults
We propose the following changes for the vaults; these changes align the vaults to match better with current market activity and utilization.
Update weETH/wstETH Vault
Current Borrowing Limits: 10k wstETH
Proposed Borrowing Limit: 15k wstETH
Pause ETH Rewards on ETH Vaults
The proposed ETH rate curve increases the return on ETH lendings by over 10% therefore we no longer require the ETH incentive. We propose pausing the ETH rewards for ETH/USDC and ETH/USDT vaults.
Reason
This proposal updates the wstETH and ETH curve rates and increases the weETH/wstETH vault borrowing limits to better align with current market conditions.
I think there should be proper discussion before proposal, why do you not follow your own rules and let people discuss first and after proper discussion you can submit proposal. I wonder how did you come up with those number in first place? Please can you share the data that shaped your reasoning?
Hi, could you please tell me what you don’t like about the new interest curve rate?
It actually decreases the borrowing APR for wstETH market and at the same time the protocol is reducing the market fee for the wstETH market which is now earning the protocol about $7M a year
with the new fee, the protocol will be earning only ~$1m a year from the wstETH market, so basically the protocol is subsidizing the market with $6M a year
this would result in a higher demand for wstETH and more people will come to leverage wsteth<>eth, so there will be more wstETH supply, allowing more LRT leveragers to come
As you can see from the text above there is still one component missing - ETH. A lending protocol needs base assets such as ETH and stablecoins to attract borrowers but first, you need to attract lenders and you can’t do it without an attractive interest rate.
As I understand, people are concerned that the borrowing rates for the weETH <> wstETH market will be too high but as I explained before, the new interest rate curves will likely attract more more wstETH and ETH liquidity to the Fluid.
It is also worth mentioning that the new interest rate curves would like help to transfer ~$600M liquidity from the Lite vaults to Fluid
Thank you for your valuable insights and supplementary details.
My reservations stemmed from apprehensions that the introduction of a new interest rate curve, linked with an augmentation of the borrowing cap, might precipitate heightened borrowing costs. This concern was predicated on the premise that we could witness utilization rates escalating to between 80-90%, consequently pushing interest rates to range between 30-40%. Given the current borrowing volume of approximately 10k/15k, elevating the cap in the absence of additional capital infusion could lead to significantly elevated utilization rates. In my assessment, such a scenario could potentially deter a considerable segment of users from the weETH/wstETH vault, thereby adversely affecting the TVL within the protocol.
It is indeed heartening to learn about the protocol’s contemplation to ameliorate market fees as a strategy to incentivize new deposits. This initiative appears to be a judicious allocation of resources, especially in a phase characterized by robust growth, and could markedly enhance Fluid’s stature in the arena of money markets and leverage.
I wonder if there exists a strategic approach to recalibrate the sequence of operational adjustments to foster the sustainable expansion of this promising new vault. The concurrent implementation of all proposed modifications on the Fluid platform with one proposal appears to be risky if not everything goes according to plan. Perhaps a phased strategy, commencing with the recalibration of the interest rate curve and fee structure, could serve to attract liquidity from Instadapp Lite. Subsequently, following the successful integration of this liquidity, a revision of the borrowing cap could be considered. This staged approach might mitigate potential risks and facilitate a more stable growth trajectory for the platform.
Thank you for sharing your perspective and addressing the concerns with detailed points. It’s clear that you envision a dynamic where the simultaneous implementation of all three elements—fee adjustment, interest rate curve change, and increase in borrow cap—could create a beneficial environment for both borrowers and lenders, thereby enhancing the overall appeal and functionality of the platform. Your assumption hinges on immediate and significant migration of liquidity (specifically, a transfer of 4-5k wstETH from Lite to Fluid) following the interest rate adjustment, maintaining borrowing rates at manageable levels even with an increased borrowing cap.
Furthermore, you anticipate that the elevated lending APR in the wstETH market would attract more lenders, which, in turn, would exert downward pressure on borrowing rates in the weEth market. This theory suggests a balanced ecosystem where the weEth participants benefit from more favorable terms post-implementation. However, I’m curious about the necessity for the concurrent execution of all three strategic changes. Could you elaborate on the potential risks or missed opportunities that might arise from a phased approach? Specifically:
Timing and Market Dynamics: How might market dynamics or external factors influence the effectiveness of these changes if implemented in stages rather than simultaneously? For instance, could there be a temporary misalignment in liquidity that a phased approach might exacerbate? Externalities and Unforeseen Circumstances: What are the specific externalities or unforeseen circumstances you think might disrupt the phased implementation? It would be beneficial to understand the potential challenges that could impede the smooth transition between phases.
Immediate Liquidity Transfer Assurance: The assumption of an immediate transfer of 4-5k wstETH from Lite to Fluid seems critical to the strategy. Could you provide more insight into the mechanisms or assurances in place that guarantee this liquidity shift will occur as anticipated? Understanding the rationale behind the simultaneous implementation could provide deeper insights into the strategic planning and risk management considerations at play. This, in turn, would allow for a more nuanced discussion about the most effective approach to implementing these significant changes within the Fluid ecosystem.