KVORUM
compoundSource: Compound governor bravo · #162

Interest Rate Curve Updates for Ethereum Compound v3 USDC

executedMay 27, 2023, 04:35 PM UTCby7B0x7b3c…cc33

01Summary

AISummary by Kvorumclaude-haiku-4-5

Gauntlet proposes adjusting 7 interest rate curve parameters for Ethereum Compound v3 USDC to incentivize growth and migration by modifying supply/borrow kinks, slopes, and rates. Key changes include increasing supply kink to 95%, increasing supply slope high to 0.76, decreasing borrow base rate to 0.01, and flatlining borrow APR past the 90% borrow kink.

Type
parameter change

Key changes

  • Increase Supply Kink from 80% to 95%(high)
  • Increase Annual Supply Interest Rate Slope High from 0.4 to 0.76(high)
  • Decrease Annual Borrow Interest Rate Base from 0.015 to 0.01(high)
  • Increase Borrow Kink from 80% to 90%(high)
  • Decrease Annual Borrow Interest Rate Slope High from 0.25 to 0 (flatlining borrow APR past kink)(high)
  • Increase Annual Supply Interest Rate Slope Low from 0.0325 to 0.034(medium)
  • Decrease Annual Borrow Interest Rate Slope Low from 0.035 to 0.0333(medium)
Contracts0xc3d688B66703497DAA19211EEdff47f25384cdc3
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Read the description ↗

02Description

198 words

Interest Rate Curve Updates for Ethereum Compound v3 USDC

Simple Summary

A proposal from Gauntlet to adjust 7 IR Curve parameters.

Gauntlet recommends the following changes to the Ethereum v3 USDC IR curve:

  • Increase Annual Supply Interest Rate Slope Low from 0.0325 to 0.034
  • Increase Supply Kink from 80% to 95%
  • Increase Annual Supply Interest Rate Slope High from 0.4 to 0.76
  • Decrease Annual Borrow Interest Rate Base from 0.015 to 0.01
  • Decrease Annual Borrow Interest Rate Slope Low from 0.035 to 0.0333
  • Increase Borrow Kink from 80% to 90%
  • Decrease Annual Borrow Interest Rate Slope High from 0.25 to 0

For more details, see the full forum post here.

Motivation

The proposed IR curve attempts to drive growth and migration as follows:

  • Flatline Borrow APR past the borrow kink
  • Adjust borrow/supply kinks & slopes to incentivize efficient and appealing equilibrium APRs

Full proposal and forum discussion

Specification

The proposal implements the above changes on the cUSDCv3 Ethereum Comet using the Configurator.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.

03Mismatch analysis

AIMismatch analysis by Kvorum

A calldata-vs-description analysis is not generated yet. Review the decoded actions →

04Actions

8 total
#0setBorrowKink(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setBorrowKink(address,uint64)
Arguments
{
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3",
  "newBorrowKink": "900000000000000000"
}
Calldata
#1setBorrowPerYearInterestRateBase(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setBorrowPerYearInterestRateBase(address,uint64)
Arguments
{
  "newBase": "10000000000000000",
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3"
}
Calldata
#2setBorrowPerYearInterestRateSlopeLow(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setBorrowPerYearInterestRateSlopeLow(address,uint64)
Arguments
{
  "newSlope": "33300000000000000",
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3"
}
Calldata
#3setBorrowPerYearInterestRateSlopeHigh(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setBorrowPerYearInterestRateSlopeHigh(address,uint64)
Arguments
{
  "newSlope": "0",
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3"
}
Calldata
#4setSupplyKink(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setSupplyKink(address,uint64)
Arguments
{
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3",
  "newSupplyKink": "950000000000000000"
}
Calldata
#5setSupplyPerYearInterestRateSlopeLow(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setSupplyPerYearInterestRateSlopeLow(address,uint64)
Arguments
{
  "newSlope": "34000000000000000",
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3"
}
Calldata
#6setSupplyPerYearInterestRateSlopeHigh(address,uint64)chain 0x1
Target
0x316f…36e3
Value
0 wei
Function
setSupplyPerYearInterestRateSlopeHigh(address,uint64)
Arguments
{
  "newSlope": "760000000000000000",
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3"
}
Calldata
#7deployAndUpgradeTo(address,address)chain 0x1
Target
0x1ec6…8779
Value
0 wei
Function
deployAndUpgradeTo(address,address)
Arguments
{
  "cometProxy": "0xc3d688B66703497DAA19211EEdff47f25384cdc3",
  "configuratorProxy": "0x316f9708bB98af7dA9c68C1C3b5e79039cD336E3"
}
Calldata

05Tally

Summed from votes

Voters9
VP participating534.7K
Outcome (current)For
Current support100%

06Voters

9 total

No votes recorded yet.

07Forum

AIForum synthesis by Kvorumclaude-sonnet-5
sentiment · favorablethread · constructive

Arguments for

  • Flatlining the borrow APR past the kink removes the disincentive for borrowers to exceed 80% utilization, preventing stagnation and improving borrower UX.— nlord
  • The current curve results in negative net protocol profit (COMP rewards far exceeding USDC reserve growth), and the new curve is designed to improve this via greater long-term reserve growth.— nlord
  • Adjusting kinks and slopes to target an 85-95% equilibrium utilization range offers more appealing APRs for both suppliers and borrowers than historical averages, incentivizing protocol growth.— nlord
  • Because USDC is not usable as collateral in v3, suppliers only seek yield, and very high supply APR at 100% utilization (7.03%) should quickly attract new suppliers to restore liquidity.— nlord
  • Transferring USDC reserves from v2 to v3 (and dynamically allocating them at sustained 100% utilization) would let suppliers withdraw even during high-utilization periods, mitigating liquidity crunch risk.— nlord, TylerEther
  • The more aggressive curve (versus a hybrid approach) is prioritized now to encourage large v2 borrowers, who have not migrated despite prior reward incentives, to move to v3 by eliminating variable high borrow APR risk.— nlord

Arguments against

  • Shrinking the current unutilized USDC buffer (used as withdrawal liquidity) risks a liquidity crunch even though it improves capital efficiency.— TylerEther
  • Capping borrow APR at ~4% could be problematic if utilization stays pinned at 100%, since suppliers might panic and attempt a mass exodus, compounded by the 7-day governance delay needed to fix parameters.— TylerEther
  • Relying on high supply APR to attract lenders at 100% utilization may be less effective than charging borrowers more, since supply-side incentives reflect only opportunity cost while borrow-side incentives reflect real cost to borrowers.— TylerEther
  • A more moderate configuration (e.g., an additional kink near 98% utilization) might be a safer alternative to the proposed aggressive flatlining approach.— TylerEther

Unresolved concerns

  • Whether suppliers could face a genuine liquidity crunch and panic-driven mass exodus if utilization remains pinned at 100% for an extended period, given the slow 7-day governance response time.— TylerEther
  • Whether the recommended transfer of USDC reserves from v2 to v3 (and dynamic reserve allocation at sustained 100% utilization) will actually be implemented before or alongside this proposal.— nlord, TylerEther
  • Whether an additional kink near 98% utilization or a more moderate hybrid curve would better balance growth incentives against liquidity risk, an idea raised but not adopted in the final proposal.— TylerEther
  • Limited ability for USDC suppliers to withdraw at high utilizations remains an acknowledged risk to supplier UX that is not fully mitigated in the current proposal.— nlord

Notable participants

  • nlordProposer from Gauntlet who authored the IR curve proposal, presented the data-driven rationale, and responded in detail to community concerns.
  • TylerEtherPrimary community critic who raised liquidity crunch, mass exodus, and alternative curve design concerns, prompting detailed clarifications from the proposer.
  • GauntletPosted the final on-chain proposal link, signaling the proposal moved to a vote.
Generated by Kvorum
model: claude-sonnet-5
provider: anthropic
profile: anthropic-strong-v1
prompt: v1.0
generated: 2mo ago
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