Raise Maximum Interest Rate on AMPL Market

Simple Summary

This proposes raising the maximum AMPL interest rate to better balance incentives between the borrow and deposit sides of the market.

Motivation

Following API-12, AMPL borrowing & depositing went live on the AAVE v2 market [date=2021-07-24 time=20:22:00 timezone="UTC"].

Since then, there has been a near 100% utilization rate of deposited assets. This suggests the maximum cap of the interest rate curve is not able to reach a high enough value to effectively balance incentives between the borrow side and depositing side of the marketplace.

While the AMPL spot market is currently in a relatively extreme condition, the AAVE borrowing market should be able to perform efficiently in all market scenarios.

Specification

We suggest the following parameters for AAVE's default interest rate model:

• Optimal utilization = 75%
• Slope1 = 2%
• Slope2 = 10,000%

This leads to a piecewise linear curve with two parts and three defining points:

• Borrow Interest(0) = 0% APY
• Borrow Interest(75) = 2% APY
• Borrow Interest(100) = 10002 % APY

Rationale

A higher cap of the borrow interest rate will allow the marketplace to have a more sustainable equilibrium.

Since this will result in overall higher fees coming into the system, in tandem we also suggest lowering the reserve factor from 20% to 10% to incentivize more depositors. This would be submitted as a separate AIP to decouple these two decisions.

We believe a nonlinear interest curve is healthiest long-term and could likely be used by many other assets as well, however this work can be discussed more in the future.

Implementation

A deployment of the existing implementation of the Interest Strategy will be used, with the following parameters:

optimalUtilizationRate: new BigNumber(0.75).multipliedBy(oneRay).toFixed(),
baseVariableBorrowRate: new BigNumber(0).multipliedBy(oneRay).toFixed(),
variableRateSlope1: new BigNumber(0.02).multipliedBy(oneRay).toFixed(),
variableRateSlope2: new BigNumber(100).multipliedBy(oneRay).toFixed(),

https://etherscan.io/address/0x509859687725398587147Dd7A2c88d7316f92b02#readContract

Copyright

Copyright and related rights waived via CC0.