BAL Interest Rate Curve Upgrades
01Summary
Llama proposes to amend BAL interest rate parameters across Aave Ethereum v2, Polygon v2, and Polygon v3 to improve capital efficiency and address high borrowing demand. Key changes include increasing Uoptimal from 45% to 80%, raising the Base rate from 0% to 3%, and increasing Slope1 from 7% to 14%. The BorrowCap on Polygon v3 will increase from 156.3K BAL to 256.140K BAL. These changes aim to reduce rate volatility, increase capital efficiency, and boost Aave's BAL-denominated revenue.
- Type
- parameter change
Key changes
- Increase Uoptimal parameter from 45% to 80% across all BAL reserves to reduce rate volatility and improve capital efficiency(high)
- Increase Base rate from 0% to 3% to better reflect borrowing cost for BAL(high)
- Increase Slope1 from 7% to 14%, raising borrowing cost at Uoptimal point from 7% to 17%(high)
- Decrease Slope2 from 300% to 150%(medium)
- Increase BorrowCap on Polygon v3 from 156.3K BAL to 256.140K BAL to align with new Uoptimal parameter(high)
- Standardize interest rate curves across Ethereum v2, Polygon v2, and Polygon v3 deployments(medium)
Notable concerns
- High borrowing costs (17% at Uoptimal point) may deter some borrowers despite external incentives from Aura Finance
- Polygon v3 migration incentive strategy depends on external incentive structures remaining stable
- BorrowCap increase to 256.140K BAL represents significant expansion of available BAL to borrow
Generated by Kvorum
02Description
Summary
Llama presents a proposal to amend BAL interest rate parameters on the Aave Ethereum v2, Polygon v3 and Polygon v2 Liquidity Pools.
Abstract
There is currently a high demand for borrowing BAL (borrow rate = 46.7% on Polygon v3) across all Reserves. This proposal will improve the capital efficiency of the BAL pools by increasing the SupplyCap, BorrowCap, and Uoptimal parameters.
The interest rate curves across all Aave deployments will be the same, with Polygon v3 expected to offer higher returns relative to Polygon v2 and hopefully entice users to migrate to v3. This proposal is expected to increase Aave’s BAL-denominated revenue whilst offering users greater capital efficiency.
Due to incentives offered by Aura Finance and others, strong borrowing demand is expected to continue in light of increased borrowing costs. For example, depositing BAL into Aura Finance’s staking contract generates 42.2% at the time of writing.
Motivation
Due to strong borrowing demand for BAL, the reserve utilization often exceeds the Uoptimal parameter on active reserves, causing the borrowing rate to be volatile. The chart below shows the volatility in BAL borrowing rates on the only non-frozen BAL reserve, Polygon v3.
By increasing the Uoptimal parameter, a greater portion of the BAL reserve can be borrowed by users without experiencing such volatility borrowing rates, providing the BorrowCap is accommodative. This proposal will improve the capital efficiency of the reserves by increasing the Uoptimal parameter from 45% to 80%.
Due to the high borrowing demand for BAL, which often exceeds 20%, it is fair to conclude that the borrowing rate for BAL is set too low. This proposal introduces a Base 3.0% and increases the Slope1 parameter from 7.0% to 14.0%. The borrowing cost at the Uoptimal point is 17.0% (Base + Slope1) on the proposed curve compared to 7.0% on the existing curve.
With Aave receiving 20% of all fee revenue, this will lead to increased BAL nominated revenue.
In addition to the interest rate curve changes, this proposal will also increase the BorrowCap from 156.3K BAL to 256.140K BAL. Revising the BorrowCap higher will enable users to benefit from the increased the Uoptimal parameter. Do note, the BorrowCap figure was provided by Chaos Labs.
Specification
The below table shows the current and proposed changes to the BAL Interest Rate on Ethereum v2, Polygon v2 and Polygon v3.
| Parameter | Current (%) | Proposed (%) |
|---|---|---|
| Uoptimal | 45 | 80 |
| Base | 0 | 3 |
| Slope1 | 7 | 14 |
| Slope2 | 300 | 150 |
| Reserve Factor | 20 | 20 |
The below shows the proposed changes to the Borrow Cap on Polygon v3.
| Polygon Parameter | Units |
|---|---|
| Supply Cap | 284,600 (no change) |
| Borrow Cap | 256,140 |
Borrow Cap is calculated: (Uoptimal + 0.1) x SupplyCap (0.8+0.1) x 284,600 = 256,140
Implementation
Test cases can be found here
Payload Implementation can be found here
Proposal Payload deployed address can be found [here] (https://etherscan.io/address/0x3b6532efb7a60711f8f3fa77a589a726c836f4cf) Proposal Payload for Polygon deployed address can be found [here] (https://polygonscan.com/address/0x98bc9dfa3cecb37f1bdeadc6e774d39082756b19)
Interest Rate Strategy deployed address can be found here Interest Rate Strategy deployed address for Polygon v2 can be found here Interest Rate Strategy deployed address for Polygon v3 can be found here
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
The proposal describes a single logical change (updated BAL interest rate curve, SupplyCap and BorrowCap) implemented via two deployed payload contracts: one for Ethereum mainnet and one for Polygon, whose addresses are explicitly given in the Implementation section. The decoded calldata contains exactly two top-level actions: (1) an execute() call to the Ethereum payload address, and (2) an execute(address) call to a cross-chain governance bridge/executor passing the Polygon payload address as argument. Both addresses in the calldata match precisely the addresses cited in the proposal text for the Ethereum and Polygon payloads respectively, so there is no target mismatch. The granular numeric parameter changes (Uoptimal 45%->80%, Base 0->3%, Slope1 7%->14%, Slope2 300%->150%, BorrowCap increase, etc.) are encoded inside the logic of these payload contracts and are not individually visible in this top-level decoded calldata — this is standard practice for Aave governance proposals, where the on-chain vote only shows delegatecall/execute invocations to pre-audited, linked payload contracts rather than raw parameter-setting calls. Because the addresses align exactly with the description and the pattern (mainnet payload + cross-chain executor call for Polygon payload) is the expected mechanism for this type of proposal, I find no evidence of a discrepancy. Confidence is medium rather than high because the specific numeric changes cannot be independently verified from the two opaque execute() calls alone, but the structural mapping between description and calldata is fully consistent.
Generated by Kvorum
04Actions
- Target
- 0x3b65…f4cf
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
- Target
- 0x158a…d45b
- Value
- 0 wei
- Function
- execute(address)
- Arguments
{ "0": "0x98Bc9dfA3cEcB37F1bdeadc6e774d39082756B19" }- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
No forum thread is confidently linked to this proposal.
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