[PCP-15] Stablecoin Interest Rate Adjustments

[chaoslabs]

Summary

Following an analysis of interest rate data, we recommend optimizing stablecoin interest rates on Seamless. This is especially important given ongoing changes to MakerDAO’s DAI Savings Rate. Additionally, given that Reserve Factors have been set to 0 since Seamless’ inception, we find it prudent to introduce them at a rate that aligns with those of other protocols. Given the nature of current supply and borrow, we do not expect this to impact supply.

USDC

The largest USDC supply and borrow positions come from the same account, which is looping the asset, along with WETH and USDbC. 9 out of the largest 10 suppliers are looping USDC with itself. This suggests that organic deposit demand is relatively limited.

The same is true of borrows, with 8 of the 10 largest positions looping USDC with itself.

Additionally, we can see that borrow rates have trended slightly below Slope1.

As a result, we recommend increasing Slope1 to 7%. While this may temporarily reduce market size, it is likely that, over time, the overall size of the market will grow and become more efficient.

USDbC

USDbC’s user distribution is quite similar to the above, with significant looping of the asset with itself.

USDbC has spent a significant amount of time above its current Slope1 of 4%. To remedy this, we recommend aligning Slope1 with the proposed USDC Slope1, while also increasing Slope2 from 60% to 74% to reduce deviations above UOptimal.

DAI

DAI has only two users who supply more than $70K worth of DAI. This points to a lack of organic supplying demand that can be improved with interest rate adjustments, especially given MakerDAO’s changes to its DSR, which set a standard for DAI interest rates specifically as well as broader rates.

There is some organic borrowing demand, likely due to the borrow rates remaining lower than on other venues.

However, this paradigm has led to a significant rate of volatility in the market, with multiple spikes above UOptimal and into Slope2. For this reason, we again recommend increasing Slope1. This will likely allow for significant improvements in the market and reduce the time spent above UOptimal. For this reason, we also recommend reducing Slope2 from 300% to 75%, which will help reduce rate volatility around UOptimal and improve the user experience.

Specifications

Asset	Reserve Factor	Slope1	Slope2
USDC	0% → 10%	5.5% → 7%	-
USDT	0% → 20%	4% → 7%	60% → 75%
DAI	0% → 15%	5.5% → 7%	300% → 75%

[richyRNG]

Thanks for sharing @chaoslabs ! i think it’s prudent for the seamless community to constantly re-examine market conditions when it comes to IR curves. Additionally, it probably makes sense to act on recommendations fairly quickly to ensure the protocol is in line with the wider market?

[Smailov]

I’m fully in support of the suggested adjustments. It’s crucial to stay adaptive to market changes.

[nubi]

Yes! Let’s do it - especially with RF coming up soon

[lewis]

In favor. This analysis is awesome, and keeps Seamless competitive in a time when users have many options for where to place their stables. Would hope for periodic revisiting of this exercise as market and sentiment changes overtime.

[ForkingBlocks]

Yes in favor of this proposal. Thank you Chaos Labs for the constant vigilance and insightful posts. Staying competitive is very important and this proposal may help keep Seamless at the forefront of protocols on Base.

[richyRNG]

This seems to have been generally positively received without significant feedback. As such, I am suggesting this moves to the two-day cooldown period before an onchain vote is initiatied. I have reposted the proposal below, you will note no significant feedback/changes were made. However, since reserve factor has been incorporated already in a separate and parallel proposal, the reserve factor portion of this recommendation will be put on hold for now.

[PCP-15] Stablecoin Interest Rate Adjustments]

Summary

Following an analysis of interest rate data, we recommend optimizing stablecoin interest rates on Seamless. This is especially important given ongoing changes to MakerDAO’s DAI Savings Rate. Additionally, given that Reserve Factors have been set to 0 since Seamless’ inception, we find it prudent to introduce them at a rate that aligns with those of other protocols. Given the nature of current supply and borrow, we do not expect this to impact supply.

USDC

The largest USDC supply and borrow positions come from the same account, which is looping the asset, along with WETH and USDbC. 9 out of the largest 10 suppliers are looping USDC with itself. This suggests that organic deposit demand is relatively limited.

The same is true of borrows, with 8 of the 10 largest positions looping USDC with itself.

Additionally, we can see that borrow rates have trended slightly below Slope1.

As a result, we recommend increasing Slope1 to 7%. While this may temporarily reduce market size, it is likely that, over time, the overall size of the market will grow and become more efficient.

USDbC

USDbC’s user distribution is quite similar to the above, with significant looping of the asset with itself.

USDbC has spent a significant amount of time above its current Slope1 of 4%. To remedy this, we recommend aligning Slope1 with the proposed USDC Slope1, while also increasing Slope2 from 60% to 74% to reduce deviations above UOptimal.

DAI

DAI has only two users who supply more than $70K worth of DAI. This points to a lack of organic supplying demand that can be improved with interest rate adjustments, especially given MakerDAO’s changes to its DSR, which set a standard for DAI interest rates specifically as well as broader rates.

There is some organic borrowing demand, likely due to the borrow rates remaining lower than on other venues.

However, this paradigm has led to a significant rate of volatility in the market, with multiple spikes above UOptimal and into Slope2. For this reason, we again recommend increasing Slope1. This will likely allow for significant improvements in the market and reduce the time spent above UOptimal. For this reason, we also recommend reducing Slope2 from 300% to 75%, which will help reduce rate volatility around UOptimal and improve the user experience.

Specifications

NOTE: Reserve Factor will not be considered for an update at this moment due to the parallel reserve factor proposal that is ongoing

Asset	Reserve Factor	Slope1	Slope2
USDC	0% → 10%	5.5% → 7%	-
USDT	0% → 20%	4% → 7%	60% → 75%
DAI	0% → 15%	5.5% → 7%	300% → 75%

[lewis]

There was an onchain tally vote SIP 16 that nearly reached quorum however certain delegates missed the voting window.

As such there is a new onchain tally vote SIP 17 with the same proposal.