Gauntlet recommends the below:
- Lowering LT to 62% and LTV to 57% in order for BAL to better align with other assets on v3, with respect to the relationship between their risk profiles and their respective params.
- Keeping the borrow cap at 185k, but updating the supply cap from 1000k to 700k per our updated supply methodology to reflect current market conditions.
- Updated debt ceiling 2.9M USD to maintain debt ceiling / supply cap ratio.
- Changing the LB to 8.3% to align with our original recommendation.
- Maintain current variable IR curve settings (see notes below).
- Increase Stable Slope1 to be 20% to be more aligned with the framework set forth in Borrow Interest Rate - Risk.
Variable IR curve analysis:
Previously, we had analysis about the BAL interest rate curves here. Namely, we had advocated for a higher Slope1 given the usage of auraBAL: “The proposed 14% interest rate at the optimal point is lower than the historical Polygon v3 market’s 30 day average borrow rate of 35% and Aura Finance’s staked auraBAL yield of 60%. Given the Aura staking yield, the breakeven utilization would be approximately 87% based on recommended IR parameters. The breakeven utilization represents the threshold at which the borrowing BAL to mint and stake auraBAL becomes unprofitable.” Given the changes in market conditions and declines growth trajectory, our analysis shows that the proposed variable interest rate settings will balance risk and capital efficiency.
