- Title: Amend Interest Rate models
- Author(s): Seraphim Czecker
- Submission Date: 21.02.2022
Simple Summary
This proposal includes changes to interest rate models on the following assets: USDC, DAI, WETH, USDT, UNI and LINK.
Abstract
This is a proposal to amend the interest model on the following assets: USDC, DAI, WETH, USDT, UNI and LINK. Currently, all assets on Euler are following the default interest rate model, which was originally created for the riskier, default isolated assets. However, given the high quality nature of those assets, it is appropriate to bring the interest rates in line with the market as the current rates are too high.
Motivation
The goal of the proposal is to boost the capital efficiency and utility of the Euler protocol. The current risk factors on the protocol are purposefully restrictive as a part of Euler’s soft-launch in late Dec 2021. Since then, the protocol has performed well against a backdrop of extreme price volatility and a large number of liquidations across DeFi. Furthermore, there have been no reports of any critical bugs on the protocol in spite of a $1m public bug bounty being live for nearly a month. Amending the interest rate models will create a more competitive rate market in DeFi without increasing risks to the protocol.
Specification
Proposed change:
Asset | Base IR | Kink IR | Max IR | Kink% |
---|---|---|---|---|
USDC | 0% | 4% | 100% | 80% |
WETH | 0% | 4% | 100% | 80% |
DAI | 0% | 4% | 100% | 80% |
USDT | 0% | 4% | 100% | 80% |
UNI | 0% | 20% | 300% | 80% |
LINK | 0% | 20% | 300% | 80% |
Current rate model:
Asset | Base IR | Kink IR | Max IR | Kink% |
---|---|---|---|---|
Default | 0% | 10% | 300% | 50% |
Base IR is the APY at 0% utilisation; Kink IR is the APY at Kink%, Max IR is the APY at 100% utilisation, Kink% is the utilisation level where the slope becomes steeper
Implementation
Contract | Method | Token | Token Name | Token Address | Updates |
---|---|---|---|---|---|
Governance | setIRM | USDC | USD Coin | 0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48 | interestRateModel:STABLE |
Governance | setIRM | WETH | Wrapped Ether | 0xC02aaA39b223FE8D0A0e5C4F27eAD9083C756Cc2 | interestRateModel:STABLE |
Governance | setIRM | DAI | Dai Stablecoin | 0x6B175474E89094C44Da98b954EedeAC495271d0F | interestRateModel:STABLE |
Governance | setIRM | USDT | Tether USD | 0xdAC17F958D2ee523a2206206994597C13D831ec7 | interestRateModel:STABLE |
Governance | setIRM | UNI | Uniswap | 0x1f9840a85d5aF5bf1D1762F925BDADdC4201F984 | interestRateModel:MAJOR |
Governance | setIRM | LINK | ChainLink Token | 0x514910771AF9Ca656af840dff83E8264EcF986CA | interestRateModel:MAJOR |
Voting
Voting yes signals approval of the suggested implementation.
Risk Assessment
Assuming the current utilisation in the respective pools, the proposal is unlikely to lead to liquidations as borrow APYs will decrease on every asset. Furthermore, the assets are some of the most established tokens in DeFi and hence lower APYs do not present substantial risk even if the proposal ultimately stimulates higher utilisation.
Here is a breakdown of changes to the Borrow APYs given the same utilisation:
Asset | Base IR | Kink IR | Max IR | Kink% | Current Utilisation | Current Borrow APY | New Borrow APY |
---|---|---|---|---|---|---|---|
USDC | 0% | 4% | 100% | 80% | 33.10% | 6.62% | 1.66% |
WETH | 0% | 4% | 100% | 80% | 27.67% | 5.53% | 1.38% |
DAI | 0% | 4% | 100% | 80% | 49.41% | 9.88% | 2.47% |
USDT | 0% | 4% | 100% | 80% | 23.51% | 4.70% | 1.18% |
UNI | 0% | 20% | 300% | 80% | 0% | 0% | 0% |
LINK | 0% | 20% | 300% | 80% | 0% | 0% | 0% |
Therefore, we think the change is appropriate.