Gauntlet recommends adjusting the interest rate (IR) parameters for WETH in order to boost borrowing demand for use in LST leverage yield strategies and augment capital efficiency within the protocol. Gauntlet recommends the following IR adjustments:
| IR Parameters | Current | Recommended |
|---|---|---|
| Base | 0.02 | 0.01 |
| Kink | 0.6 | 0.75 |
| Multiplier | 0.15 | 0.04 |
| Jump Multiplier | 3 | 3.8 |
The reduction in the Multiplier from 0.15 to 0.04 will modify the initial slope to align more closely with cbETH’s annualized staking yield. We have raised the kink to 75% to reduce the gradient of the pre-kink slope, thereby minimizing the volatile changes that occur before the kink. The Jump Multiplier has been increased to 3.8 to have Borrow APR at 99% when at full utilization.
Specification
cbETH Yield
*Source:DefiLlama
We analzyed the staking yield for cbETH for the past year and utilized this data to inform where the Multiplier is set. cbETH’s APY yield has averaged 3.75% the past 90 days. As such, we recommend to set the Multiplier with a 25 bps buffer at 4% to prevent high utilization over the kink and prevent volatile borrow rate changes to borrowers.
ETH IR Curves
Current liquidity pool utilization for ETH is at 54% with borrow APR of 10.5%. That borrow APR translates to approximately ~77% utilization for Gauntlet’s recommended IR curve. The current borrow rate of 10.5% is above our Multiplier rate but the gradient of the Jump Multiplier rate should maintain utilization below 80% if borrow rate stays at this level.
Gauntlet will continue to monitor the WETH’s pool utilization and make any further recommendations to IR curve or incentives to minimize high risk utilization which can hinder liquidations and create a poor UX for suppliers, as it can restrict their ability to withdraw an asset from the pool.
ETH IR Curves before the 75% Kink
The decrease in Multiplier and increase in kink should increase the profitably of LST leverage yield strategies and lower the gradient of the curve prior to the kink to prevent any large volatile changes to the IR curve.
Top ETH Positions
| Address | Supply Position | Borrow Position |
|---|---|---|
| 0x7780e86699e941254c8f4d9b7eb08ff7e96bbe10 | 1,995.8293 ETH | 1,421.0486 ETH |
| 0xa5c9ea9c76c7b3310bb30c762e56557dd2b7c1d7 | 397.0267 ETH | 473,660.87 USDbC |
The position 0x7780e, which holds the largest supply and borrow quantity of WETH, is engaged in a loop recursive strategy.