Moonwell BASE recommendations (2023-09-19)
Summary
We propose updating Moonwell’s BASE interest rate parameters to mitigate potential liquidity risks by increasing interest rates above the kinks for Stablecoin and ETH.
We also propose to lower cbETH’s borrow rates below the kink to facilitate cbETH leverage strategies where users borrow cbETH to lend ETH when the rate differential is positive.
Collateral factors
We agree with Gauntlet’s proposed parameters. We will also closely monitor USDC and USDbC’s liquidity in the coming weeks. Some of the incentives allocated towards the USDbC market have been shifted to the USDC market so we should be seeing a gradual shift in the lending and borrowing activity as well.
Proposed IR parameters
Stablecoins IR parameters (DAI, USDC, USDbC)
| IR Parameters | Current | Gauntlet Recommendation | Warden Finance Recommendation |
| Base | 0.00 | 0.00 | 0.00 |
| Kink | 0.80 | 0.80 | 0.80 |
| Multiplier | 0.05 | 0.045 | 0.045 |
| Jump Multiplier | 2.5 | 2.5 | 8.6 |
| Reserve Factor | 0.15 | 0.15 | 0.15 |
| Utilization | Borrow rate (current) | Supply rate (current) | Borrow rate(proposed) | Supply rate (proposed) |
| 0% | 0.00% | 0.00% | 0.00% | 0.00% |
| 80% (Kink) | 4.00% | 2.40% | 3.60% | 2.15% |
| 100% | 54% | 40.5% | 175% | 131% |
This recommendation supports Gauntlet’s proposal. We propose to increase rates above the kink in order to mitigate potential liquidity risks. Higher borrow rates above the kink incentivize borrowers to repay their loans and can attract new lenders in order to maximize liquidity at all times.
cbETH IR parameters
| IR Parameters | Current | Warden Finance Recommendation |
| Base | 0.01 | 0.00 |
| Kink | 0.45 | 0.45 |
| Multiplier | 0.2 | 0.07 |
| Jump Multiplier | 3.0 | 3.15 |
| Reserve Factor | 0.15 | 0.15 |
| Utilization | Borrow rate (current) | Supply rate (current) | Borrow rate(proposed) | Supply rate (proposed) |
| 0% | 1% | 0% | 0% | 0% |
| 45% (Kink) | 10.0% | 3.4% | 4.2% | 1.1% |
| 100% | 175% | 131% | 175% | 131% |
We recommend lowering the base rate to 0% and lowering the kink interest rate in order to facilitate borrowing cbETH. This proposal will make it more capital efficient for cbETH borrowers while mitigating potential liquidity risks.
ETH IR parameters
| IR Parameters | Current | Gauntlet Recommendation | Warden Finance Recommendation |
| Base | 0.01 | 0.01 | 0.01 |
| Kink | 0.75 | 0.80 | 0.70 |
| Multiplier | 0.04 | 0.04 | 0.04 |
| Jump Multiplier | 3.8 | 4.8 | 4.8 |
| Reserve Factor | 0.15 | 0.15 | 0.15 |
| Utilization | Borrow rate (current) | Supply rate (current) | Borrow rate(proposed) | Supply rate (proposed) |
| 0% | 1% | 0% | 1% | 0% |
| 70% (Kink) | 3.8% | 2.0% | 3.8% | 2.0% |
| 100% | 99% | 75% | 147% | 110% |
We recommend lowering ETH’s kink to 70% in order to mitigate potential liquidity issues. We are in favor of Gauntlet’s recommendation to increase the Jump multiplier to 4.8.