[ARFC] Aave v3 Polygon wMATIC Interest Rate Update

Hi Everyone :wave:

With the recent update from Gauntlet, here, we would like to pick up this proposal and progress towards submitting an AIP.

With the recent publication from Chaos Lab regarding BorrowCaps, we are proposing adjusting the BorrowCap risk parameter in response to increasing the Uoptimal from 45% to 75%.

Parameter Current Proposed
Uoptimal 45% 75%
Base 0% 0%
Slope1 7% 6.1%
Slope2 300% 100%
Reserve Factor 20% 20%
Supply Cap 32.88M 49.32M
Borrow Cap 9.23M 27.95M

Level 1 Borrow Cap = SupplyCap * (UOptimal+0.1) = 32.88M * (0.75+0.1) = 27.95M
Level 2 Borrow Cap = 0.7 * CurrentSupply = 0.7 * 17.54M = $12.28M
The recommended borrow cap should be the larger value between Level 1 and Level 2.

With Liquidity Mining likely to occur on this Reserve and the known directional affects this will have on Supply / Demand, we prefer to also utilise the upper band outlined above.

In setting the Supply Cap, current utilisation 53.18%, we expect more than $13.94M of inbound deposits once Liquidity Mining commences. Therefore, we would like to suggest increasing the Supply Cap by around 50%, to 49.32M. This would be enough for all of the wMATIC, 26.60M, on v2 to migrate plus an allowance for some extra liquidity. Given the sizeable increase in BorrowCaps already suggested, we suggest waiting to see how the market reacts to Liquidity Mining emissions before making further adjustments.

If any risk parameters suggestions from the community were to emerge, we will gladly update our proposal. Given the introduction of SupplyCap and BorrowCap changes, another Snapshot vote to confirm the path forward is to be performed.

If the community wants to explore enabling Stable Borrowing of wMATIC, then this would be an ideal opportunity to implement such a change. Let us know in the comments if there is any appetite for such a change and we will update the post accordingly.

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