- Competitive rates are based on lowest stablecoin borrow rates on each lending venue for particular collateral, except when stablecoins are used as collateral (in such case only DAI borrow rate is compared)
- Negative competitive rates are mostly due to liquidity mining rewards at Compound and due to rates and rewards accrued on deposited collateral
- Risk premiums are currently based on proposed RP from collateral onboarding applications and adjustments made by governance.
- Lending products between secondary lenders and MakerDAO are not standardized and therefore rates can not be strictly compared. Please see a detailed spreadsheet in the link above where differences among lenders are addressed. Note that MakerDAO is better suited for larger vault owners who may wish to borrow larger amounts and won’t affect the rate (as they do at secondary lenders). On the other hand Maker charges highest liquidation penalty fees and requires more collateral on average to be posted when borrowing.
We currently don’t foresee any rate changes for MakerDAO Vault types apart from potential changes for stablecoin Vaults proposed by governance, which will be voted in this Signal.
Market rates on USD borrowing in crypto space seem to be currently slightly trending downwards due to a cooldown of a bull cycle and liquidity mining craze we witnessed during this summer (see futures basis in the spreadsheet). As seen in the table above, most of the MakerDAO rates are already slightly above competition and between 4% and 6% higher for ETH and WBTC compared to Compound being most competitive. On the other hand a small rate decrease can be justified only for ETH if risk compensation is still met.
In the current environment we don’t foresee any rate changes needed and we will continue to monitor developments further, specifically related to borrowing demand that was put on hold due to liquidity mining cooldown.
Largest Vault Types Outlook
ETH-A: Since late September when rates were increased from 0 to 2%, DAI minted from ETH-A decreased for about 13m DAI or 3.7%. It is hard to judge whether this relatively small decrease in percentage terms was a consequence of a higher fee charged, particularly since other lending venues also haven’t been experiencing growth in stablecoin borrowing in the last month. It is quite possible that lower farming APYs and a significant price drawdown in DeFi assets put leverage seekers on hold a bit. This is also supported by the evidence that at least ⅓ of ETH-A Vault Types hold borrowed DAI for liquidity mining purposes. Note also that ETH-B with 130% LR and 6% SF was just enabled which might give us some feedback about sensitivity on higher rates with a LR set similarly as at Compound.
WBTC-A: Since the last rate increase from 2% to 4% in late September DAI debt from WBTC fell a bit more significantly by 8m or by about 9%. The spread versus Compound is almost 6% and during this time Compound increased its Loan to Collateral factor from 40% to 60%. Quite possibly the 4% rate by MakerDAO is on the upper limit before larger refinancing might be witnessed.
As noted, please vote on potential changes implemented to stablecoin SF due to different strategies outlined in the post and pros and cons associated with them.