Summary
This proposal seeks to adjust the interest rate parameter “Slope 1” for the USDC market on the Neutron outpost of the Red Bank, increasing it from 12.5% to 20%. This change aligns the interest rate parameters for USDC on Neutron with those on Osmosis, ensuring consistency across both markets.
Motivation
During the previous proposal posted on August 21, which successfully implemented nobleUSDC on Neutron, the Slope 1 parameter was set at 12.5%. However, users have pointed out a discrepancy between the interest rates for USDC on Neutron and Osmosis. Specifically, the current borrow APY is 10% at 61.7% utilization on Neutron, whereas the borrow APY is around 15% at 55.4% utilization on Osmosis. This difference can be attributed to the varying Slope 1 parameters between the two markets.
On Osmosis, Slope 1 for USDC was set to 20%, while on Neutron, it was mistakenly set to 12.5%, despite both markets aiming for similar conditions. Since USDC plays a crucial role as a stablecoin and collateral for margin trading, it’s essential to maintain consistent interest rate dynamics across different outposts to prevent market inefficiencies or unexpected borrowing costs.
The goal of this adjustment is to align the Slope 1 for USDC on Neutron with that of Osmosis, thus ensuring a uniform interest rate structure across both outposts. This will eliminate the discrepancy in borrowing costs and create a more predictable environment for users participating in the Red Bank on both Neutron and Osmosis.
Risk Considerations
This change introduces a higher Slope 1, meaning that borrowing costs will increase more sharply as the utilization rate approaches the optimal threshold (80%). Additionally, since Slope 1 also affects the borrowing rate when utilization is below the optimal level, borrowing costs will increase overall following this update. However, this adjustment is necessary to ensure consistency between the two markets (Neutron and Osmosis) and to keep the interest rate curve aligned with market demand, ensuring liquidity is adequately compensated.
No significant risks are foreseen as this adjustment brings the parameters in line with an already-functioning market (Osmosis) and follows the Mars Risk Framework.
Proposed Changes
- Current Slope 1: 12.5%
- Proposed Slope 1: 20%
This adjustment is to be applied to the USDC market on the Neutron outpost of the Red Bank, ensuring consistency across the Mars ecosystem.
Implementation
This is a signaling proposal, not an executable proposal.
The Mars smart contracts on the Neutron chain are currently controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary parameter changes.
Copyright
Copyright and related rights waived via CC0.
Disclaimers/Disclosures
This proposal is being made by Mars Protocol Foundation, a Cayman Islands foundation company. Mars Protocol Foundation engages in research and development of the Mars Protocol. Mars Protocol Foundation and certain of its service providers and managers own MARS tokens and have financial interests related to this proposal. The aforementioned persons or their affiliates may also have financial interests in complementary or competing projects or ecosystems, entities or tokens, including NTRN, USDC, and dATOM. These statements are intended to disclose relevant facts and to help identify potential conflicts of interest, and should not be misconstrued as a complete description of all relevant interests or conflicts of interests; nor should they be construed as a recommendation to purchase or acquire any token or security.
This proposal is also subject to and qualified by the Mars Disclaimers/Disclosures. Mars Protocol Foundation may lack access to all relevant facts or may have failed to give appropriate weighting to available facts. Mars Protocol Foundation is not making any representation, warranty or guarantee regarding the accuracy or completeness of the statements herein, and Mars Protocol Foundation shall have no liability in the event of losses or damages ensuing from approval or rejection or other handling of the proposal. Each user and voter should undertake their own research and make their own independent interpretation and analysis of all relevant facts and issues to arrive at their own personal determinations of how to vote on the proposal.