Thanks @Alex_BertoG for summarizing comments from the previous ARC! Responses to different points below.
The AMPL reserved was fully utilised at multiple occasions and for lengthy periods with depositors unable to withdraw the liquidity they deposited since rational actors were borrowing the available liquidity to take advantage of the superior yield offered by the rebasing.
This was the case with ~60% APY. Which was clearly low and it was expected prelaunch that an adjustment will be needed after the launch. Deriving from the behavior at max ~60% APY that the needed APY is as high as 6,565,963,106% (The equivalent of 5% daily) is a big stretch.
To avoid this situation again, I believe that the max borrow rate should be aligned with the rebasing returns
While avoiding 100% utilization is a major goal there are other factors at play.
Setting an APY as high as 6M%:
- Will be costly to long term borrowers due to the potential short lived but very high interest rates.
- The sensitivity of such very steep curve to utilization will make the borrowing market very unpredictable reducing its utility.
The proposed curve above at its maximum daily interest is equivalent to rebase amount at VWAP $1.26.
The frequency of days that far from the target are reducing over time and no sign that that will change. Over the previous 90 days, it is at 4.44% of the days. Further increasing interest rates to optimize for 4% of the time that’s expected to keep going down at the expense of the utility of the other 96% of the time. Is not a great balance.
It seems the interest rate model max rate should cover this scenario as it’s not sustainable to call upon governance for frequent parameters adjustments.
There is no expectation that this is the strategy going forward.