Summary
This proposal aims to adjust parameters of the borrow interest rate curve for NTRN asset on Mars Neutron outpost.
In order to make the borrowing rate more competitive relative to ~3% staking APR we propose the following:
- Lower slope1 from 0.15 to 0.03: This significantly flattens the curve in the low-to-mid utilization range, ensuring borrow rates stay below 3% until reaching the optimal utilization point.
- Higher optimal utilization from 60% to 65-70%: Shifting the kink point allows for more capital efficiency before rates begin to rise sharply.
Motivation
The motivation behind the parameters change is making borrow rates competitive with dNTRN staking APR ~3% at low-mid utilization levels which makes dNTRN/NTRN leverage looping strategy profitable.
Risks
Opt Utilization Increase
Increasing opt utilization is related to risks for the lending protocol. Especially, less capacity to handle sudden withdrawal demands and liquidation risks when NTRN borrowing is required to liquidate positions. It is usually recommended to keep opt utilization low for highly volatile assets and/or assets with low market cap/liquidity. (e.g., Aave uses ~45% opt utilization for such assets as LINK, LDO, MKR, LBTC etc., we use ~60%-70%).
Curve Flattening
When significantly flattening the curve in the low-to-mid utilization range, there is a huge rise in the borrow rate when exceeding the optimal point by just 5%. Under the current curve, the borrow rate jumps from 15% at opt 60% to 52% at 65% (~3.5x). Under the new curve, the rate jumps from 3% at 65% to 46% at 70% (15x) or from 3% at 70% to 103% at 75% (34x). This creates an unstable zone around the optimal utilization point. The 2-kink curve could be a solution to allow for smoother transition, but we don’t maintain it.
Risk Parameters Suggestion
| Parameter | Current | Proposed |
|---|---|---|
| base_rate | 0 | 0 |
| slope1 | 0.15 | 0.03 |
| slope2 | 3 | 3 |
| opt_utilization | 60% | 65% |
Implementation
{
"update_asset" : {
"denom": "untrn"
"params": {
"interest_rate_model": {
"base": "0",
"slope_1": "0.03",
"slope_2": "3",
"optimal_utilization_rate": "0.65"
}
}
}
}
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 and dNTRN. 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.