This proposes raising the maximum AMPL interest rate to better balance incentives between the borrow and deposit sides of the market.
Since then, there has been a near 100% utilization rate of deposited assets. This suggests the maximum cap of the interest rate curve is not able to reach a high enough value to effectively balance incentives between the borrow side and depositing side of the marketplace.
While the AMPL spot market is currently in a relatively extreme condition, the AAVE borrowing market should be able to perform efficiently in all market scenarios.
We suggest the following parameters for AAVE’s default interest rate model:
- Optimal utilization = 75%
- Slope1 = 2%
- Slope2 = 10,000%
This leads to a piecewise linear curve with two parts and three defining points:
- Borrow Interest(0) = 0% APY
- Borrow Interest(75) = 2% APY
- Borrow Interest(100) = 10002 % APY
A higher cap of the borrow interest rate will allow the marketplace to have a more sustainable equilibrium.
Since this will result in overall higher fees coming into the system, in tandem we also suggest lowering the reserve factor from 20% to 10% to incentivize more depositors. This would be submitted as a separate AIP to decouple these two decisions.
We believe a nonlinear interest curve is healthiest long-term and could likely be used by many other assets as well, however this work can be discussed more in the future.
A deployment of the existing implementation of the Interest Strategy will be used, with the following parameters:
optimalUtilizationRate: new BigNumber(0.75).multipliedBy(oneRay).toFixed(), baseVariableBorrowRate: new BigNumber(0).multipliedBy(oneRay).toFixed(), variableRateSlope1: new BigNumber(0.02).multipliedBy(oneRay).toFixed(), variableRateSlope2: new BigNumber(100).multipliedBy(oneRay).toFixed(),
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