Rates Changes Proposal 26 Oct 2020

Authors: @Primoz, @LongForWisdom , @Hexonaut, @Monet-supply, @SebVentures, @Akiva

Source: Risk Premiums & Competitive Rates 26 Oct 2020

Table Notes:

  • ETH-B Risk Premium at this level of unutilized debt ceiling is likely higher due to OSM risks. The goal of proposed reduction of ETH-B SF is to attract more demand and increase debt ceiling utilization.

Overview

ETH-B Vault type has been live for about a week but we haven’t seen much of DAI minting (current DAI debt from ETH-B is at 263.000 DAI). The reason behind originally proposed 20m Debt Ceiling and 6% Stability Fee on ETH-B was to meet potentially large demand coming from current ETH-A Vault users who are involved in liquidity mining. Due to lower collateralization requirements on ETH-B they would be able to boost their yields by performing migration and Maker would have been able to earn additional fees.

It may be too early to tell whether the low usage is related to the fact that this vault type is in existence only for about a week. But since liquidity mining yields fell heavily in the past few weeks, the current 4% rate difference between ETH-B and ETH-A possibly doesn’t provide enough incentive for users to perform migration to ETH-B. Furthermore, the difference between Compound stablecoin borrow rate on ETH and ETH-B at current level is more than 5%.

We are proposing a decrease of ETH-B SF to 4% from current 6% in order to attract more demand. There is also pending Signal vote for changes going forward regarding stable coin fees.

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Interesting to see the spreadsheet with competitive rates. The Dai borrow rate on Compound is 3.94% today - it looks like you have it listed at 0.85%?

@latetot The COMP distribution is also factored in.

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Excellent comparison this - thanks!

I have two questions:

  1. The Best Competitive Rate is that a snapshot or something measured over a certain period?
  2. Is it in practical terms relevant to include competitors that offer negative rates just to build traction? These offers tend to go away fairly quickly?

I really like what you are doing here - please keep this up!

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Thanks @Planet_X

To answer you questions:

  1. Yes, competitive rates are based on current snapshot. But yes, ideally we should be using 7d or 30d rolling average for all of them once we start storing data series. Centralized lenders have rates fixed though.
  2. I agree but Compound has been offering negative rates since it started liquidity mining 4 months ago.
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Why there’s no suggestion to lower the DC on unused vaults - some of them have > 75M free space?

The LR on ETH-B is quite low and ETH is volatile so there is more of a risk.

The Rates Working Group has no changes to propose for this week other than the ETH-B and Stablecoin Action Plan votes already to governance votes today.

Going forward the Rates Working Group will not be making posts on a weekly basis unless something changes. We will still be producing the monthly reports at the beginning of every month with the exception of this one because a detailed report was made recently.

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