Update Net Margin Parameters

Summary
This proposal aims to update the net margin parameters such that 10% currently accruing to market reserves begins to accrue to the DAO Treasury instead. This proposal does not impact the 80% of interest accruing to lenders in each market. For context in each Liqwid market 80% of the interests paid by the borrowers are payed out to lenders (Income Factor). The remaining 20% is the net margin and is currently split in the following amounts for ADA, DJED, SHEN, USDC, USDT, DAI

*Income Factor: 80%
Net Margin

  • Market Reserve Factor: 10%
  • DAO Factor: 0%
  • LQ stakers: 10.00%

For the newly launched MIN, WMT and AGIX markets this proposed net margin parameter change has already been voted in:

*Income Factor: 80%
Net Margin

  • Market Reserve Factor: 0%
  • DAO Factor: 10%
  • LQ stakers: 10.00%

Reasoning
After the deployment of the borrow caps for all markets (90% for stablecoins, 80% for ADA) the utilization of the market reserves has become less likely as a mitigating measure against liquidity shortfalls.

As a reminder, the market reserves consist of tokens collected through the interest paid by borrowers and deposited in the supply. These reserves can only be withdrawn and not borrowed. The primary purpose is to provide an additional buffer for lenders in case the deposits are entirely borrowed.

Proposed Change
Currently, 10% of the interest paid by borrowers for every market is allocated to these reserves.
We propose changing this allocation from 10% to 0% and increasing the DAO Treasury allocation from 0% to 10%.

Do you support this change to allocate the 10% of interest currently accruing to the Market reserves to accrue to the DAO Treasury?

  • Yes
  • No

0 voters

I’m curious as to why a full 10% shift to the DAO. The borrow caps alleviate risk but wouldn’t it be good to continue increasing the reserves as well as fund the DAO. Why not a 5/5 split? I am no entirely opposed but having low reserves increases the burden to LQ stakers in the event of a liquidity shortfall right? Or do I not understand that correctly.

Market reserves have not been utilized to date and with the introduction of borrow caps to all markets they likely will not need to be used. Important to note the market reserves are for liquidity crunches where utilization creeps close to 100% not for shortfall events (which is the responsibility of the safety pool). Also the implementation of market reserves makes them a bit difficult to access in their current form, devs will need to complete multiple multisig transactions to do so. It’s a simpler process to deposit them into the DAO treasury and in the worst case liquidity crunch scenario a vote can be held to transfer assets from the DAO treasury.

1 Like

Okay thanks for the explanation.

Based on the discussion in Discord, why don’t we use all of the tokens received and add on to respective LQ pairs on dexes for POL. The LQ should come from the yet to be utilised DAO treasury.

Hence, there will be pools for LQ/ADA, LQ/DJED, LQ/iUSD, LQ/USDT, LQ/USDC, LQ/WMT, etc.
All of the profit from providing the liquidity shall come back to the DAO and be reinvested.

Having a Liqwid DAO treasury POL on DEXes is a complete other topic than this current market reserves discussion.

Feel free to start a discussion on this topic in a separate thread. Questions to cover would be in my eyes:

  • Advantages / Disadvantages of LQ/ADA on DEX.
  • From where is the Initial funding coming from & Eventual limit order to supply and buy?
  • Profit taking strategy (if any)
  • How long should this work?