Proposal to optimise iUSD Algo interest
Due to structural changes in CDP distributions as some CDPs adjust out their positions with the protocol regaining peg.
It is recommended to adjust the interest formula to account for the sudden shift in the market.
Borrow rates have rarely sustained above 40% on lending borrow protocols and consistently hovered at 30-35% for most stables as seen in the recent extreme move.
We felt that the risk to lower the interest cap is acceptable at this period.
Current parameters iUSD
Base int : 10%
NTCR : 200%
CTCR : 350%
Upper Limit int : 50%
Max Disc Factor : 95%
Buffer rate : 5%
Proposed parameters iUSD
Base int : 10%
NTCR : 200%
CTCR : 350%
Upper Limit int : 40%
Max Disc Factor : 95%
Buffer rate : 5%
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I think that personally, I would have gone with increasing the CTCR over decreasing the upper limit.
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Definitely a plausible route as well, that would depends on the risk structure of CDPs.
iUSD should indeed have a higher CTCR than other correlated assets.
As changing the length of the slope can risk runaway efficiency of the protocol.
Reason for interest was more of taking into account market data from recent market moves, observing that interest does not sustain above 40% for more than a day on all other major stables in the ecosystem.
I agree, I just feel like proposing a reversion from a limit of 40% back to 50% (if/once CDPs stabilize to a lower global CR) will be much harder than adjusting CTCR.
And while we will tune the parameters that we have available to us, I feel like changing the upper limit to match the market interest (because CDP owners aren’t adjust their CR) is essentially the same approach that we had before algorithmic interest, just with extra steps. An adjustment of the upper limit is effectively the same as manually voting on a specific interest rate if CDPs continue to maintain high global average CR.
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