Update wstETH Market Rates on Fluid - May 9th, 2024

Governance
1

Summary

This proposal aims to update the market rates for wstETH (Wrapped Staked ETH) on the Fluid platform to better align with current market dynamics and optimize asset utilization.

The proposal won’t be moved for the on-chain vote unless there is no positive feedback from the weETH<>wstETH vault users, we would like to know your voice.

Proposal

The Instadapp team is proposing the following changes to the wstETH Rate Curve, the following adjustments to the Rate Curves will align with current market conditions and optimize the utilization of wstETH within the protocol.

wstETH Rate Curve Adjustments

Current Rates:

  • Utilization 0%: Rate 0%
  • Utilization 70%: Rate 18%
  • Utilization 90%: Rate 26%
  • Utilization 100%: Rate 150%

Proposed Rate Curve Adjustment:

  • Utilization 0%: Rate 0%
  • Utilization 50%: Rate 17%
  • Utilization 90%: Rate 14%
  • Utilization 100%: Rate 100%

1600×1243 92.1 KB

Reason

As of today, the lenders and protocols earn less if market utilization stays low while borrowers are not incentivized to borrow more or promote the borrowing because it worsens their conditions.

We believe that with a downward interest rate curve, borrowers will be more inclined towards increasing their borrowing positions and promoting the market to others as it will improve their conditions.

Overall, it’s a win-win-win situation:

  • For borrowers as borrowing increases their borrow rate goes down.

At 85% utilization, the borrowers will pay only 14.375% APR

  • For lenders as borrowing increases lending APR goes up due to higher utilization.

At 50% utilization: the lending APR will be: 7.65%

At 85% utilization: the lending APR will be: 10.99%

  • For protocol as borrowing increases protocol’s revenue increases.

Conclusion

This proposal updates wstETH interest rate on the Fluid liquidity layer, ensuring that the rates are competitive and reflective of the broader market conditions, thereby promoting a healthy balance between borrowers and lenders on the platform.

2 Likes
2

I think this is a very interesting proposal. I wonder if we could make this simpler while maintaining its spirit.

We could achieve a similar effect with a rate curve that doesn’t invert the interest rates by introducing either a semi-fixed or a very incremental rate increase between 70%-90% utilization. This could be balanced by increasing the borrowing rate at 90% utilization:

Semi-Fixed Rate Curve

  • Utilization 0%: Rate 0%
  • Utilization 50%: Rate 11.5%
    – Utilization 70%: Rate 15%
    – Utilization 80%: Rate 15%
    – Utilization 85%: Rate 15%
  • Utilization 90%: Rate 50%
  • Utilization 100%: Rate 100%

Semi-Fixed Rate Curve
Semi-Fixed Rate Curve1226×990 36.1 KB

This approach provides a more predictable rate curve for both lenders and borrowers and still achieves the goal of bringing rates down while encouraging healthy utilization levels.

3

We believe that with a downward interest rate curve, borrowers will be more inclined towards increasing their borrowing positions and promoting the market to others as it will improve their conditions.

The goal for this curve is to incentive existing borrowers to borrow more and borrowers have incentives to share Fluid with other farmers and more users = lesser borrow rate. Keeping a straight line won’t have any incentives for borrowers. The main goal for this proposal is how can we increase utilization of the under utilized market while not punishing anyone. Keeping a static borrow rate while not punishing anyone will also not incentivize anyone to borrow more.

1 Like
4

The Instadapp Team has submitted an on-chain proposal incorporating the proposed Rate Curve with additional updates to the ETH Curve please find the on-chain proposal here:

IGP#22 - Update wstETH and ETH Rate Curves - May 9th, 2024

The above linked proposal has Passed :white_check_mark: