Parameter Proposal Group: MakerDAO Open Market Committee
Authors: @Primoz @LongForWisdom, @Monet-supply, @SebVentures, @Akiva, @hexonaut, @ultraschuppi
Source: Risk Premiums & Competitive Rates April 2021
Table Notes:
-
Risk premiums and Maximum debt ceilings are based on Liquidations 2.0 which should be implemented in next few weeks for all assets
-
Negative competitive rates are mostly due to liquidity mining rewards at Compound & Cream and due to rates and rewards accrued on deposited collateral
-
Lending products between secondary lenders and MakerDAO are not standardized and therefore rates can not be strictly compared.
Lending Market Overview
Competition in the AMM backed lending space is beginning to heat up, with Aaveâs v2 AMM market going live over the past month. This joins the Cream money market as a MakerDAO competitor.
General competition for stablecoins is also increasing, with Liquity protocol (focused on ETH based lending) and Fei protocol both launching recently. Inverse Financeâs DOLA stablecoin is another notable upstart competitor. Greater competition in the stablecoin space could reduce DAI demand and increase Makerâs cost of capital, although this does not appear to be an issue presently.
Rates have remained high throughout the month of March, with Aave in particular seeing very high stablecoin borrowing rates. This was partly caused by poorly tuned stable rate parameters, which allowed certain users to borrow all of Aaveâs liquidity for below market rates. This in turn caused borrow rates for opening new positions to reach extremely high levels. Aave is addressing this by deactivating stable rates in Aave v1 via a governance proposal.
Compound DAI Borrow Rates
Aave DAI Borrow Rates (yellow)
Proposed Changes
ETH-A and WBTC-A
We arenât proposing any rate changes for our largest vault types this month since we have recently seen a notable amount of USDC-A and PSMUSDC-A unwinding and we may want to keep momentum going. The newly calculated risk premiums that are based on Liquidations 2.0 are also showing lower figures for higher debt exposures, which makes us less worried about the pace of debt increase on ETH-A.
LINK-A
- Increase SF from 3.5% to 5%
Higher debt utilization has increased LINK-A risk premium and we therefore recommend 5% SF, which is still lower than average competitive rate of 7.9%.
ETH-B
- Increase SF from 9.0% to 10.0%
Despite increasing SFs in the last months, the utilization of ETH-B has not changed. We believe we can increase SF by additional 1% as ETH-B borrowers might be less rate sensitive than believed.
YFI-A
- Increase
line
from 75 MM to 90 MM
The current executive is raising the line
of YFI-A from 45m to 75m. However, risk metrics for YFI-A currently look very good because of high collateralization of largest vaults and therefore an even higher debt ceiling can be implemented. We may though recommend higher SF for this vault type next month if the newly set debt ceiling becomes heavily utilized again or vault collateralization metrics worsen.
ZRX-A
- Increase SF from 2.0% to 4.0%
ZRX has one of the worst on-chain liquidity metrics that is an important factor under Liquidations 2.0 implementation. Risk premium therefore increased and we recommend higher SF, especially if debt exposure continues to grow with recently increased debt ceiling to 10m.
AAVE-A
- Decrease SF from 4.0% to 3.0%
- Increase
line
from 25 MM to 50 MM - Increase
gap
from 2 MM to 5 MM
The on-chain liquidity of AAVE and vault collateralization metrics are very good and we can safely decrease SF. Similarly we recommend a higher debt ceiling despite the low utilization.
BAT-A
- Decrease SF from 6.0% to 5.0%
- Increase
line
from 3 MM to 7 MM
BAT also has improved metrics which lead to risk premium to decrease. It is still higher compared to other similar collateral assets because of a lower 150% liquidation ratio. Yet, we recommend the decrease of SF and increase of Debt Ceiling.
RENBTC-A
- Increase
line
from 2 MM to 10 MM - Increase
gap
from 0.5 MM to 1 MM
Utilization on RENBTC-A has increased in the last month and recent joint undertakings from Alameda and Ren team decreased some of the risks associated with the RenVM protocol. We therefore recommend a higher debt ceiling.
LRC-A
- Increase SF from 3.0% to 4.0%
- Decrease
line
from 10 MM to 5 MM - Decrease
gap
from 2 MM to 1 MM
LRC on-chain liquidity is mostly on the L2 which creates some risks for Liquidations 2.0. We therefore recommend higher SF and lower debt ceilings until vault and liquidity metrics improve.
MANA-A
- Decrease SF from 4.0% to 3.0%
- Increase
line
from 2 MM to 5 MM - Increase
gap
from 0.5 MM to 1 MM
NFT hype has improved MANA metrics and we recommend slightly favourable changes to both debt ceiling and stability fee.
BAL-A
- Decrease SF from 3.5% to 2.0%
- Increase
line
from 5 MM to 30 MM - Increase
gap
from 1 MM to 3 MM
BAL metrics improved - although the volumes are lower, the on-chain market depth metrics are very good. Despite the SF being already low, we can afford to lower it additionally and boost demand.
Stablecoin Vaults
- Decrease USDT-A Debt Ceiling from 2.5 MM to 0 MM
We believe the USDT-A vault doesnât carry any business significance for Maker and we are recommending to âdisableâ this vault type by setting the debt ceiling to 0.
Once we have PSM implemented for other stablecoins, we will also suggest setting debt ceiling for other stablecoins vaults to 0 (PAXUSD-A, GUSD-A).
UNI LPs
UNIV2DAIETH-A
- Increase SF from 3% to 3.5%
- Increase
line
from 30 MM to 50 MM
Because of 125% LR, this vaultâs risk profile is similar to ETH-A and higher SF should be implemented from a risk perspective. We though recommend a smaller increase compared to ETHUSDC pair since we prefer users favour DAI pair. Because of recent high demand after increased debt ceiling we are also recommending another increase to equal USDCETH LP pair debt ceiling.
UNIV2USDCETH-A
- Increase SF from 3.5% to 4.5%
Similarly as mentioned above, this UNI LP pair should have higher SF from a risk perspective as ETH exposure in Maker is increasing. Because of a) higher APY for eth-stablecoin pairs and b) 5x max leverage and c) much higher competitive rates at Aave we believe such SF is still very tempting for users.
UNIV2DAIUSDC-A
- Decrease SF from 3.0% to 1.0%
We may want to stimulate this pair as it has a similar risk profile for Maker as PSM but can be more yielding. APY for users at max 11x leverage and at 1% rate can reach over 50%.
UNIV2WBTCETH-A
- Replace Debt Ceiling of 3 MM with
line
of 20 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 3 MM
With the upcoming implementation of Liquidations 2.0 we believe we can safely increase debt ceilings of other riskier UNI LPs. The recommended debt ceiling increase is still lower than what models suggest due to caution and expected delay of Liq 2.0 implementations for UNI LPs.
UNIV2UNIETH-A
- Replace Debt Ceiling of 3 MM with
line
of 20 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 3 MM
Model suggests a higher available debt ceiling but we are increasing it with caution for reasons mentioned above.
UNIV2LINKETH-A
- Decrease SF from 5.0% to 4.0%
- Replace Debt Ceiling of 3 MM with
line
of 20 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 2 MM
A smaller increase in debt ceiling is due to higher LINK debt utilization on LINK-A vaults and lower demand.
UNIV2AAVEETH-A
- Decrease SF from 5% to 4%
- Replace Debt Ceiling of 3 MM with
line
of 20 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 2 MM
A smaller increase in debt ceiling is due to smaller UNIV2AAVEETH current pool size and lower demand. We are also recommending lower SF due to lower exposure and low pool APY.
UNIV2ETHUSDT-A
- Replace Debt Ceiling of 3 MM with
line
of 10 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 2 MM
We are suggesting smaller increases for USDT related exposures due to various Tether related concerns that still havenât completely settled.
UNIV2DAIUSDT-A
- Decrease SF from 4% to 3%
- Replace Debt Ceiling of 3 MM with
line
of 10 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 2 MM
We are suggesting smaller increases for USDT related exposures due to various Tether related concerns that still havenât completely settled. We are also recommending lower SF to stimulate demand as there is not usage, probably due to lower pool APY.
UNIV2WBTCDAI-A
- Decrease SF from 2% to 0%
- Replace Debt Ceiling of 3 MM with
line
of 20 MM - Enable DC-IAM and set
ttl
to 12h andgap
to 3 MM
This vault type is not seeing any demand even at 2% and we are suggesting 0% rate to boost demand. Increased liquidity in this pool would also help Maker with our overall WBTC exposure and WBTC liquidity risks.
Final Note
Proposed Parameter Changes will get included into next weekâs on-chain poll on 2021-04-11T22:00:00Z, and if passed will be included in an executive vote on 2021-04-15T22:00:00Z.