Review of Gauntlet’s BASE/Moonbeam/Moonriver Recommendations (2023-12-06)
Warden has reviewed the proposed changes by Gauntlet and supports the recommendations.
We also recommend further updates on Moobeam deployment to mitigate risk associated with high utilization for stable markets (USDC.wh, xcUSDT).
Recommended changes
Given increasing utilization levels for USDC.wh and xcUSDT markets on Moonbeam, we recommend amending the proposal with the following changes:
xcUSDT
| Parameter | Before | Gauntlet’s proposal | Warden’s proposal |
|---|---|---|---|
| Base | 0 | 0 | 0 |
| Kink | 0.8 | 0.8 | 0.8 |
| Multiplier | 0.0625 | 0.065 | 0.065 |
| Jump Multiplier | 2.5 | 2.5 | 4.0 |
| Reserve Factor | 0.15 | 0.15 | 0.15 |
| Borrow APR | Before | Gauntlet’s proposal | Warden’s proposal |
|---|---|---|---|
| Base (0% utilization) | 0% | 0% | 0% |
| Kink (80% utilization) | 5.0% | 5.2% | 5.2% |
| Max (100% utilization) | 55% | 55.2% | 85.2% |
USDC.wh
| Parameter | Before | Gauntlet’s proposal | Warden’s proposal |
|---|---|---|---|
| Base | 0 | 0 | 0 |
| Kink | 0.8 | 0.8 | 0.8 |
| Multiplier | 0.062 | 0.065 | 0.065 |
| Jump Multiplier | 3.5 | 2.5 | 4.75 |
| Reserve Factor | 0.15 | 0.15 | 0.15 |
| Borrow APR | Before | Gauntlet’s proposal | Warden’s proposal |
|---|---|---|---|
| Base (0% utilization) | 0% | 0% | 0% |
| Kink (80% utilization) | 4.96% | 5.2% | 5.2% |
| Max (100% utilization) | 74.96% | 55.2% | 100% |
xcUSDC
| Parameter | Before | Gauntlet’s proposal | Warden’s proposal |
|---|---|---|---|
| Base | 0.02 | 0 | 0 |
| Kink | 0.8 | 0.8 | 0.8 |
| Multiplier | 0.1 | 0.065 | 0.065 |
| Jump Multiplier | 1.09 | 2.5 | 4.0 |
| Reserve Factor | 0.15 | 0.15 | 0.15 |
| Borrow APR | Before | Gauntlet’s proposal | Warden’s proposal |
|---|---|---|---|
| Base (0% utilization) | 2% | 0% | 0% |
| Kink (80% utilization) | 10.00% | 5.2% | 5.2% |
| Max (100% utilization) | 31.80% | 55.2% | 85.2% |
Analysis
BASE
The overview of the current usage for markets on Base is presented on Warden’s Markets dashboard:
We have identified the following change in market condition during the last month:
-
Volatile USDC and DAI rates - Following up to the introduction of USDC rewards, USDC and DAI supply/borrow rates have been increasingly volatile due to increased demand for recursive strategies, pushing utilization over kink.
-
Supply/borrow cap reached - Following up to the introduction of USDC rewards, overall demand for lending and borrowing has increased across all markets. DAI, rETH and wstETH caps have been reached.
-
USDbC outflows - Since the deprecation of supply-side rewards for USDbC, large outflows in USDbC supply caused spikes in utilization above kink, making rates volatile.
The proposed changes by Gauntlet should be effective at addressing the above concerns:
-
Volatile USDC and DAI rates - Given that demand for lending stables is generally very elastic to rates, the suggested increase in kink rate from 3.6% to 4% (+11%) should be significant enough to move utilization below the kink.
-
Supply/borrow cap reached - We also suggest increasing the concerned caps for DAI, wstETH, rETH. The proposed caps by Gauntlet are within very safe levels relative to DEX liquidity levels on Base and do not significantly increase risk exposure for the protocol. We also note that rETH and DAI circulating supply on Base are low relative to current supply cap. Warden will closely monitor rETH and DAI market usage and may adjust rewards if circulating supply does not grow sufficiently to support further inflows for these markets.
-
USDbC outflows - Given that the demand for lending stables is generally very elastic to rates, the proposed decrease in kink should will most likely reduce market utilzation and leave more room for large USDbC holders to move their liquidity in other markets. Sizeable USDbC supply and borrow positions are still present in the market.
In order to increase utility for wstETH market, Gauntlet also suggests increasing wstETH collateral factor from 0.75 to 0.76. We have no concerns with this change, as the impact on tolerance to volatility for the market is very low (-3.14%).
In a worst case drawdown scenario, liquidators would still be able to profitably liquidate a position corresponding to 20% of the supply cap (100 wstETH) within a few transactions at current DEX liquidity level ($382k @ 4% depth). Time available to profitably liquidate the position is 10375.7 minutes during this worst case scenario, which is well above Warden’s minimal recommendation of 60 minutes.
Moonbeam
The overview of the current usage for markets on Moonbeam is presented on Warden’s Markets dashboard
We have identified the following changes in market condition during the last month:
-
FRAX liquidity decrease - Large supply positions are currently pulling out of the market. In fact, the biggest FRAX supplier 0x9ab73dcfcc4705bcecb4d6afac1048eef1471d30 has been actively deleveraging its recursive position over the last month.
-
Increased USDC.wh and xcUSDT utilization - Demand for borrowing USDC.wh has slowly increased over the last month, pushing utilization above kink and resulting in very high and volatile borrow rates. xcUSDT utilization rate has also been largely over kink for the last month.
Gauntlet’s proposal adequately addresses 1) FRAX liquidity decrease issues and is a valid first step in tackling bad debt issues on Moonbeam
As of 2) Increased USDC.wh and xcUSDT utilization, the proposed change to USDC.wh, xcUSDT, and xcUSDC interest rate model should have some effect in lowering utilization for USDC.wh and xcUSDT markets. In addition to increasing rates at kink, we suggest increasing the jump multiplier such that max borrow rate reaches 100% for xcUSDT and 85% for USDC.wh.
source: https://www.warden.finance/markets?protocols=moonwell_artemis