Interest rate cap needs to be near infinite to be realistically useful imo.
I started writing a deep dive and feel lenders will get utterly wrecked unless some kind of Epoch is set up.
Came across this thread while writing thanks to @state , so just gonna add my two cents now instead of wait to finish that. There is an attack surface that exists in AMMs that we can learn from.
Consider the AMM attack surface
The attack is structured as following.
- Rebase occurs. The supply changes, and is reflected in each accounts balance on the token level. This difference is not reflected on the pools virtual balance
- Attacker enters pool with very large size, perhaps funded through flashloan.
- Attacker calls function (Sync/Gulp) to update pools local virtual balance, which then distributes rebase proportionally across all participants, giving the attacker a large share of other peoples rebase.
- Attacker exits pools.
If 2, 3 and 4 are all in the same transaction an attacker can significantly capture a large sum of value without much price risk. To prevent this, the rebase contract is designed to call Sync/Gulp in the same transaction rebase occurs
Applying this attack Lending
Rebase takes a price change and settles in units once daily. These units remain the same (outside of transfers, etc) until the next rebase. The rebase itself, reflects the 24 hour average price of AMPL.
The below chart calcs 1 day worth of interest to match impact of rebase. 1825% charged over 24 hours at $1.50.
But what if a borrower is only borrowing for a few blocks before rebase and a few blocks after. Lets say 1 min in total.
That’s a 2,628,000% interest rate for that move to break even if AMPL rebases at an oracle price of $1.50. Talking about 10k+ as drastic is the wrong framing. It’s not near enough to prevent short term value extraction from the pool.
I think lending markets aren’t the best way to capture this. Working on a concept (soon™), but the way daily price movements are settled via Rebase equates more to an option, where interest rate premiums are too abstract. Need to be able to charge for the specific resolution in better packaged product.
I think the way Rebase works is fascinating for something like Dave White’s everlasting option model. But this lending model is not able to price risk accordingly for lenders, while giving borrowers an eye into the future. The entire battle gets pushed to a single block. Smart lenders will fight to exit pre rebase (on positive). Smart borrowers will fight to get in just before. We need to have a more structured field of entry and exit, else we have such a narrow window of free for all execution. We need to expect 100% utilization cases because of this jockeying where people can’t get out, because everyone else is pressured to push that limit to the max around the moment of rebase.