Stablecoin Market Parameter Updates

Temperature Check
1

Summary
The following stablecoin market parameter updates are proposed for all Liqwid stables markets (DJED, iUSD, USDC, USDT, DAI) including v2 supply and borrow caps.

-Borrow caps should be set to 90% of the total supply for each stablecoin market.

-Supply cap should be disabled (similar to the ADA market disabled supply cap).

-Increase the baseRate for all stablecoin markets from 2% to 5% to reflect the current risk-free rate of the 3-Month US Treasury Bill.

Reasoning

  1. An 80% borrow cap was implemented as part of the recent ADA market and risk parameter updates. This Liqwid v2 feature ensures lenders can access the pool’s liquidity during increased market utilizations. As utilizations in stablecoin markets are on average significantly higher and consistently in the 70% utilization range for most stablecoin markets a 90% borrow cap is proposed.

  2. Similar to the ADA market, supply caps for stablecoin markets should be disabled by default. The supply cap in Liqwid for assets supported as collateral is used to set the debt ceiling for that asset.
    *DJED is the only stablecoin that can be used as collateral in the protocol at this time due to its full redemption capability within the DJED protocol resulting in a hard floor for DJED of $0.985 as long as the protocol’s Collateral Ratio > 100% (1.5% redemption fee in the DJED protocol).

  3. Interest rates for lending have traditionally been based on the risk-free rate, typically represented by the 3-Month US Treasury Bill, to which a premium is added to account for credit risk. The Risk-Free Rate is typically equivalent to the interest paid on a 3-month government Treasury Bill, considered one of the safest investments available to investors. Increasing the baseRate from 2% to 5% accurately represents current market conditions for borrowing dollars with the risk free rate of short term US Treasury yields above 5%.

    Screen Shot 2023-10-21 at 4.29.10 PM
    Screen Shot 2023-10-21 at 4.29.10 PM1640Ă—914 181 KB

Additional information on the interest rate model calculation

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image804Ă—334 69.9 KB

image

Resultant interest rate curve with updated baseRate (5%) parameter
Screen Shot 2023-10-25 at 2.00.07 PM

Do you support these stablecoin market parameter updates?

  • Yes
  • No

0 voters

8 Likes
2

I support this to boost individuals willing to mint and supply stables. There is not the ability to vote yes or no.

2 Likes
3

I agree.

However, is the illustrative chart above is for both DJED and iUSD? As far as I remember, iUSD and DJED has slightly different parameters.

2 Likes
4

Currently, both assets have the same BASE MODEL, except for the kink.

DATA for iUSD
BaseRate 2.0000%
NormalRate 4.0000%
JumpRate 400.0000%
Kink 65.0000%

vs

DATA for DJED
BaseRate 2.0000%
NormalRate 4.0000%
JumpRate 400.0000%
Kink 75.0000%
4 Likes
5

can we get a poll to vote?

2 Likes
6

Hi, the poll for “the creation of the $AGIX market on Liqwid” has been added.

1 Like
7

I don’t think it will incentivize additional suppliers to come in, as the increase from 4% to 7% interest is pretty negligible compared to the 50% APR earned in LQ rewards.

However, it would lead to a massive increase in LQ staker and market reserve interest payments, so if borrowers are willing to pay the extra interest, it could be worth it.

2 Likes
8

Good supplier incentive now that LQ rewards have come down

1 Like