The other factors at play are
- Clever borrowers will try to enter and exit exactly around rebase to minimize fees paid.
- Clever lenders will try to exit end enter exactly around rebase to minimize realized loss in cases of positive rebase.
No matter what you will be getting 100% utilization.
While we discuss to APY, we are not considering the time borrowed. Please read my previous post where I demonstrate that at $1.27 (sorry didn’t map $1.26) 1,436,657% APR for 1 minute entry / exit around rebase.
I literally broke the APY calculator converting that APR and I don’t think we can reach infinite APY.
I don’t think you are really considering the more nefarious usage, and because of that, you are overlooking this massive problem. It will always get 100% utilized in positive rebase, and charging more interest doesn’t solve that, because interest is counting on continuous borrows where the borrower does not know the directionality that an asset will move or by how much. Here, a borrower knows exactly how much, and when.
Potentially with some MEV prevention techniques around rebase, we could get that window up to 15 minutes from 1, but that still does not adequately negate the problem.
I think you should consider options to hedge risk, where daily settlement can be explicit, and time to rebase can be taken into account as a market price rather than unaccounted for as interest.