- 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 & Cream and due to rates and rewards accrued on deposited collateral
- Risk premiums were recently updated for every Vault type except stablecoins where we used values from last governance votes. Links to calculations can be found in the table above.
- Lending products between secondary lenders and MakerDAO are not standardized and therefore rates can not be strictly compared.
Lending Market Overview
Due to the recent crypto bull cycle, market rates for US dollar borrowing on crypto collateral have increased over the last couple of weeks:
- Futures annualized 1M basis which are good indicator of rate trend, have increased by about 2% in the last month (source)
- Centralized margin platforms such as Bitfinex who rely on USD lending markets to offer leverage have had USD rates increased by more than 10% (source)
- Bitmex long 8h funding rate increased by more than a factor of 2 in last month (source)
- Importantly, DeFi competitive rates for USD borrowing at Compound and Aave are also higher for more than 1% on average (see analysis below)
DeFi is also continuing increased growth in terms of outstanding loans and collateral locked (TVL), although the growth seems to be more related to increased value of collateral than new organic growth. Still, demand for leverage has grown in the last couple of weeks, which explains higher rates on average.
Rates at secondary lenders such as Aave and Compound have been trending upwards in the last month, explained by increased leverage seeking activity and users potentially switching from stablecoin assets to crypto assets to participate in a bull run. DeFi rates haven’t increased as much as CeFi rates, although stablecoin borrow rates at Aave are about 2% higher one month ago. Compound rates also experienced an increase in mid November before returning to lower levels potentially due to the DAI liquidations on 26th November. To conclude, stablecoin borrow rates have increased at secondary lenders in the past month and are on average 1-2% higher. However liquidity mining rewards on platforms such as Compound and Cream are still offering cheaper rates compared to Maker.
Proposed Rate Changes
ETH-A: SF increase from 2% to 2.5%
As noted above, market CeFi rates have risen sharply over last month and the average competitive rate for ETH increased by 1.5%. ETH has experienced a 50% price increase in one month alone and DAI minted from ETH-A increased by 25% in the same period. Therefore we are suggesting SF increase of 0.5%, which shouldn’t negatively affect ETH-A vault usage if ETH bull run persists and competitive rates stay at similar levels.
ETH-B: SF increase from 4% to 5%
Debt ceiling on ETH-B is getting potentially increased to 20m this week and possibly even more in mid-December if DC IAM for ETH-B is implemented. The OSM attack should be mitigated by DC IAM but the risk compensation for low LR vault type will increase if debt exposure continues to grow. This is why we are proposing a 1% SF increase to 5%, which should still equal average competitive rates for ETH observed in December.
WBTC-A: SF increase from 4% to 4.5%
The arguments for WBTC-A SF increase are the same as for ETH-A: higher market and competitive rates. Further, DAI supply from WBTC-A increased by about 20% in the last month and we think that 0.5% higher rates shouldn’t affect DAI supply growth too negatively.
BAT-A: SF increase from 4% to 8%
The BAT-A vault type was onboarded more than a year ago when MCD launched. It has 150% LR applied although 175% LR would be more appropriate based on BAT-A risk profile. Further, worsened liquidity metrics don’t support current 3m debt exposure and 4% SF (calculated Risk Premium of 14%). We are proposing SF increase to 8% and @Risk will separately also propose Debt Ceiling decrease from current 10m.
KNC-A: SF decrease from 4% to 2%
This vault carries very low debt exposure (125k) and therefore risk premium calculated is very low. We are suggesting SF decrease to 2% in order to attract potential demand. Further, average competitive rates seem to be lower than what Maker charges currently.
ZRX-A: SF decrease from 4% to 2%
This vault carries very low debt exposure (90k) and therefore risk premium calculated is very low. We are suggesting SF decrease to 2% in order to attract potential demand. Further, average competitive rates seem to be lower than what Maker charges currently.
MANA-A: SF decrease from 12% to 10%
@Risk recently proposed Debt Ceiling decrease to only 250.000 due to worsened liquidity metrics for MANA. But days after implementation, Coinbase listed MANA tokens and liquidity was able to reach healthier levels. @Risk might therefore recommend an increase of Debt Ceiling for MANA, whereas Rates Group proposes SF decrease to 10%.
LINK-A: No changes (2% SF)
LINK is one of the most liquid ERC20 tokens and the risk premium calculated for this vault type at current debt exposure of 5.9m is only 1%. The average competitive rate is above 5% and it might be possible to increase current SF at 2%. Still, we believe that Aave borrowers using LINK as collateral might potentially still be willing to migrate over to Maker at current rates as was also observed in the past and therefore no change to SF is proposed.
COMP-A: SF decrease from 3% to 2%
This vault carries very low debt exposure (35k) and therefore risk premium calculated is very low. We are suggesting SF decrease to 2% in order to attract potential demand. Further, average competitive rates seem to be lower than what Maker charges currently.
LRC-A: No changes (3% SF)
To our knowledge there are no competing DeFi or CeFi platforms offering leverage on LRC tokens and current SF seems to be more or less in line with risk premium (1% spread). We don’t suggest any changes to this vault type.
BAL-A: SF decrease from 5% to 2%
This vault carries very low debt exposure (3k) and therefore risk premium calculated is very low. We are suggesting SF decrease to 2% in order to attract potential demand. Further, competitive rate on CREAM currently measures -33% (positive yield on borrowing). The initial SF when asset was onboarded was high due to expected higher demand (Compound and Aave don’t support BAL)
YFI-A: SF increase from 4% to 9%
The situation with YFI-A vault type was recently addressed here. Until whitelisted vaults are available, a Debt Ceiling increase to 30m and SF of 10% was voted by governance. Recent update on calculation of risk premium suggested a 9%, as the collateralization ratio got slightly higher for the largest vault. Rates Group therefore suggests 9% SF for YFI-A at 30m DC.
Stablecoins (USDC-A, TUSD-A, PAXUSD-A, GUSD-A)
The proposed SF changes to 0% for stablecoins (excluding USDT-A and USDC-B) are based on recent on-chain poll and forum thread. In case MKR holders vote for no decrease of current 4% SF, Rates Group won’t include this proposal to on-chain vote next week. In such a case @Risk will need to propose a Surplus Buffer increase for these vaults once their CR reaches 100% (expected in about 10 days).
To conclude, we think Maker should take advantage of the bull market and increased rates environment in both CeFi and Defi to slightly increase rates on its flagship vault types such as ETH-A and WBTC-A. We are proposing cautious increases that still make rates in line with competition and doesn’t cause users to refinance.
On the other hand we are also making some decisions to achieve more proper risk compensation for vault types such as BAT-A and YFI-A. And finally we are proposing rate decrease for vault types where low usage is present and the risk profile of collateral allows it.
Proposed SFs will get included into next week’s on-chain poll and if passed into executive vote on 18th December.