This proposal is about increasing the interest rates for the Stablecoins (USDC, USDT, DAI, DJED, iUSD) and reducing the number of Action for all the markets.
Source: Proposal to improve Liqwid: Protocol parameter updates
Updates:
A 4x reduction in number of action UTXOs from 16 to 4 for all markets. The ADA, DJED and iUSD and markets will be reduced from 16 to 8.
No changes will be implemented on the 1st slope pre-kinkPoint or to the current kinkPoint of 65% market utilization.
The 2nd slope (post-kinkPoint) will have its utilMultiplierJump parameter increased such that at 80% market utilization stablecoin borrowers are paying 50% (currently at 80% utilization stablecoin borrowers pay ~38%).
Reasoning:
Reducing the number of action UTxOs allows users to borrow and withdraw larger percentages of assets from the pool per Tx. Currently all markets have 16 action UTXOs meaning at any given moment, at maximum 16 users can perform actions in the same market (supply, withdraw, borrow, repay). The problem is that in smaller markets that get high utilization rates the maximum amount that can be borrowed/withdrawn is divided by 16 forcing larger holders to complete multiple borrow or withdraw transactions. Reducing this down to 4 for majority of markets means users can now borrow or withdraw up to 25% of the available market’s liquidity (as opposed to current 6.25% max). Note: a market’s available liquidity can be calculated by subtracting the borrow buffer (% difference between 100% and the borrowCap) from the total unborrowed liquidity in the market.
At sustained larger than 80% utilization in the stablecoin markets we are still not seeing borrowers repay loans. DAI is currently at 84% utilization, USDC is at 82% and USDT is at 80%. The interest rates at less than 10% away from the 90% borrow cap are still not incentivizing loan repayments to the requirement of higher rates to incentivize new supplies and loan repayments.
The Liqwid Core Team recommends the adoption of this proposal and to change the number of market UTxOs in all markets to 4, except for ADA, DJED and iUSD having 8; And to rise the interest rates in the stablecoin markets (USDC, USDT, DAI, DJED, iUSD) to reach a borrower rate of 50% at 80% utilization.
Do you support this proposal to update protocol parameters?
I dont like the loan origination fee… Does that mean, that when borrowing 100k usdc, Id need to pay 1k USDC instantly or is it “just” an increase of the minInterest?
I want to express my gratitude for putting forward this proposal and for considering my suggestion to enhance the protocol. I fully endorse the amendments outlined in points 1 and 2 under the ‘Updates:’ section, and I am in partial agreement with the adjustments proposed in point 3.
Here is my reasoning for point 3;
You cannot remove the reward from the person who actually supplied the asset! I disagree with your approach here.
The current rule of sharing 80% of interest with the suppliers should not change. It is unfair to remove the supplier from the reward generated from the loan which they supplied and allowed to happen. It is because of the supplier that the loan can be generated. I propose that the current interest calculation continues to apply here where 80% of interest is shared with the suppliers and 10% with DAO treasury and 10% with LQ stackers.Allow me to elaborate on my stance regarding point 3. It is imperative not to negate the reward due to the individual who contributed the asset. I fundamentally disagree with the proposed approach in this regard. The existing rule, which allocates 80% of the interest to the suppliers, must be upheld. It would be unjust to exclude the supplier from the rewards generated by the loan facilitated by their contribution. The very existence of the loan is contingent upon the supplier’s participation. Thus, I advocate for maintaining the current interest calculation methodology, wherein 80% of the interest is distributed to the suppliers, 10% to the DAO treasury, and 10% to LQ stackers.
80% of all fees/interest generated from the suppliers assets should continue to be shared with them.
To illustrate using your example:
In a scenario where the borrower incurs only 2% interest (including loan origination fee) upon repayment, the supplier of the asset should rightfully receive 50% of the interest generated, equating to 1%. However, considering the distribution model, the supplier receives only 80% of that 1%, as 20% is allocated to the DAO Treasury and LQ stackers. Consequently, the supplier receives 0.8% in a 2% interest scenario.
Similarly, if the borrower repays the loan with a 6% interest (including loan origination fee), the supplier should receive 4% of the interest, which represents 66% of the interest generated from their supply.
I support all three proposals but ‘strongly’ reject the unfair treatment of the suppliers. There is nothing to loan without the suppliers.
I would be happy to take a loan where the origination fee is between 0.5-1%.
I agree with points 1 & 2 but I believe that it is premature to charge the origination fee.
Obviously, as an LQ staker, I would love to earn more. However, I fear that this would make the protocol less competitive. I would favor first increasing supply and borrow activity with the least fraction possible. After we pass $1 Billion TVL (Aribtrary threshold), perhaps we can revisit this topic.
I amended my initial response above to mention (including loan origination fee). I was calculating total interest incurred along with origination fees together.
Just throwing some idea here with regard to Proposal 3, and also addressing @heinrichs’ concern. I agree that loan origination fee will result in lower volume of borrowing because users need to pay upfront.
What if we implement loan closing/repayment fee instead? So people are not discouraged to open as many loan as they want. And then any repayment later on (whether partial or full) will result in 0.5% fee. I imagine this 0.5% fee to be a separate liner within the pop out which appears when users click the “Repay” button.
Say a user wants to full repay a total USDC loan of 100,000.
There will be a separate line which says:
Agreed with perpetual loans it should be paid upfront at loan origination. When banks extend credit for personal loans or mortgages the loan origination fee is charged upfront and the loan is also fixed term not perpetual.
I strongly encourage all who have voted Yes to consider moving to a No vote to pull Point #3 out and into its own proposal.
Voted No: Overall
This proposal should be three or at least two based on the feedback. I would Vote Yes on one and Maybe 2, but not on 3 as it stands.
Point 1: Yes - This seems to be unanimous in the discord, original temp check, and proposal. It will allow for a more natural withdrawal flow, it would be great if the UI can show how many slots are in use.
Point 2: No- This is a bit excessive; if the rates must be pushed up, it should be at lower levels, 1.5x the current rate. Most of these Stables have seen an inflow of Supply and an increase in Liquidity over the past month. These three Stablecoins are seeing low repayment due to the low number of borrowers less opportunity for repayment bc fewer loans taken out… 10 for Dai, 25 for USDC, and 50 for USDT, compared to 284 for DJED and 226 for IUSD. The stables with more borrowers have lower rates. Increasing rates for loan repayment will decrease the supply rate; fewer loans will push down Supply APR. If one large repayment happens, the supply rate will decrease drastically. While it is not fast, the utilization rate has been reducing 0.5-2% a week. If stable rates drop to below 10-15% we will be back in a similar position.
Point 3: No - This one should be a stand-alone proposal that needs to be fleshed out more. It seems to have the most unfavorable feedback and should not ride behind the other two points. The timing for an Origination fee should occur, if at all, when the protocol has more TVL. It would help to list out what other DEFi protocols charge, I did not have much success finding DeFi origination fees. Not all banks charge an Origination fee, and a lot of Banks also waive this fee when the competition is heavy and or/ banks also cap the fee amount. If any fee is implemented, turning it on and off(waive) should be possible when competition is high. A high fee will turn off short term borrowers and drive them elsewhere; long term borrowers will probably be indifferent. This will also affect Liquidators overall performance and ROI.
Aave origination fee is 0.0000001% seems excessive to have a Liqwid fee be one million times higher. maybe. Looking at interoperability and comparing the last two bull runs and the advances that continue to occur, advancements will continue to reduce the cost of bridging your assets off of Cardano and placing them into other DeFI protocols unless Cardano has higher rates.
Proposals can have multiple related actions in them, specifically when they are all related and originate from the same initial discussions. This is a normal proposal practice to include multiple related actions in a single vote. That said given the points raised in this thread it makes sense to have this loan origination fee as a separate proposal with multiple options similar to what @AliD just mentioned below.
"Yes a separate vote can be held on introduction of the loan origination fee that includes multiple option, for example:
can be any variation of split and % as well this is just an example."
You are taking the current Aave origination fee, how do you know their loan origination fee was not higher when they initially launched it? Introduction of loan origination fee comes down to more properly pricing the risk Liqwid as a protocol endures to serve as Cardano’s main liquidity source for borrowers. The risk is specific to Aave v2 pooled lending protocols and the risk is enhanced due to Cardano limitations (specifically no fee market and during periods of high chain load).
Liqwid as a protocol carries some inherent liability in the oracle and liquidation engines that protect lender deposits and protect the protocol from unhealthy loans causing bad debt. This risk and liability grows as Liqwid TVL grows. This is an idiosyncratic risk specific to Aave v2 style liquidity pool protocols which is made worse given Cardano network limitations (especially during increased chain load). Most protocols that allow users to create collateralized debt positions charge a % fee on the borrowed amount usually in the range of 1-2.5%. This is true for both DeFi protocols and banks in TradFi.
If the origination fee will come in will you at least allow the community to vote on how it should be split? and the initial amount it will be? providing different options to vote on.
