We propose onboarding DAI as a collateral asset on Moonwell’s Base deployment. Due to the market demand and rapid increase in DAI liquidity on Base we think it appropriate to list the asset as collateral. Additionally, we propose updating USDbC’s interest rate curve to keep it in line with DAI.
Recommendations
We propose launching DAI as collateral with the following parameters:
We propose to set DAI’s interest rate curve parameters and update USDbC’s interest rate curve parameters as follow:
Stable IRM Parameter
Value (current)
Value (proposed)
Base rate
0
0
Multiplier
0.05
0.05
Kink
0.8
0.8
Jump multiplier
2.5
4.775
Reserve factor
0.15
0.15
The proposed stablecoin interest rate curve increases the maximum interest rate in cases of high utilization to mitigate liquidity concerns.
Utilization
Borrow rate (current)
Borrow rate (proposed)
Base utilization (0%)
0%
0%
Kink utilization (80%)
4%
4%
Max utilization (100%)
56%
100%
Analysis
KPIs for Dai on Base, with USDbC as comparison (as of August 15 2023)
Asset
Circulating supply (Base)
Circulating supply (all chains)
Bridge
-5% liquidity depth (to ETH)
DAI
15M
4B
Base (Native)
$384k
USDbC
52M
26B
Base (Native)
$1.33M
Given the significant difference in on-chain liquidity of DAI vs USDbC, we recommend scaling the supply and borrow caps for DAI to ⅛ of those of USDbC.
Market
Supply cap
Borrow cap
DAI
5M
4M
USDbC
40M
32M
Deployment
We strongly recommend collateral factors to be set at 0 during deployment to mitigate the risk of someone exploiting a known Compound v2 issue (see Hundred Finance exploit).
Steps for safe deployment as proposed by Hexagate are the following:
Initialize markets using 0 as collateral factor (no borrowing possible).
Burn a small amount of collateral token supply for each market.
Set collateral factors for each market as specified
After seeing community member Warden propose to list DAI as an asset, Gauntlet has conducted a market risk analysis for this initial asset listing
Risk Parameter Recommendations
Parameters
Gauntlet Rec
Warden Rec
CF
0.8
0.8
Supply Cap
6,000,000
5,000,000
Borrow Cap
5,000,000
4,000,000
Protocol Seize Share
0.3
0.3
DAI (Stablecoin) IR Recommendations
Stable IR Parameters
Gauntlet Rec
Warden Rec
Base rate
0
0
Multiplier
0.05
0.05
Kink
0.8
0.8
Jump Multiplier
2.5
4.775
Reserve factor
0.15
0.15
Increasing the Jump Multiplier will minimize high risk utilization to the liquidity pool which can hinder liquidations and create a poor UX for suppliers, as it can restrict their ability to withdraw an asset from the pool.
However, such an increase might adversely impact stablecoin borrowers, as stablecoin liquidity pools often borrow close to the kink. A steeper gradient would thus intensify the interest paid by borrowers should utilization surpass the kink. For instance, with 82% utilization, the proposed curve would generate a Borrower APR of 14.55%, in contrast to the 10% in the existing curve.
Since USDbC has not experienced any significant utilization above the 80% kink, we do not recommend increasing the max interest rate for utilization post kink.
DAI has large market caps and strong tokenomics across global chains.
Supply and Borrow Caps
Borrow and supply caps are the primary parameter recommendations we can make to mitigate protocol risk when listing new assets. Gauntlet recommends setting the borrow and supply caps strategically to allow for market growth while minimizing risk to the protocol.
If the community opts to initiate a lending pool with collateral factors greater than 0, Gauntlet strongly advises the protocol to establish reserves within the pools as a precautionary measure against a Hundred Finance attack.
