[ARFC] Adjusting Interest Rate Curve for weETH on Arbitrum

Proposal updated to focus on Arbitrum, as parameters for Base have been bundled in the weETH deployment AIP


Title: [ARFC] Adjusting Interest Rate Curve for weETH on Arbitrum

Author: ACI ( Aave Chan Initiative)

Date: 2024-05-27


Summary

The current proposal suggests adjusting the Interest Rate Curve for weETH on Arbitrum network to align with the mainnet, so Risk Parameters will be the same for weETH on Mainnet, Arbitrum, and Base networks.

The aim is to optimize the utilization rates and improve both lending and borrowing for users.

Motivation

By adjusting the Interest Rate Curve, we aim to encourage more borrowing and lending activity, optimize the utilization rates, and enhance liquidity on Arbitrum and Base networks.

  1. Base Rate Increase: Increasing the base rate provides a more attractive return for lenders, encouraging more weETH deposits.
  2. Slope 1 Adjustment: Adjusting the Stable Rate Slope offers slightly higher interest for moderate utilization, making borrowing more attractive.
  3. Slope 2 Adjustment: Reducing Stable Rate Slope 2 prevents excessively high borrowing costs at higher utilization rates, thus avoiding sharp declines in borrowing activities.
  4. Utilization Rate Optimal: Raising the optimal utilization rate aims to better match the network’s current usage patterns, ensuring a smoother transition between interest rate slopes and maintaining liquidity.
  5. Reserve Factor: weETH borrowers and LP are less sensible to interest rates due to external incentives, to Optimize the DAO revenue the reserve factor is changed.

Specification

Change Arbitrum Risk Parameters for weETH to align with Mainnet & Base.

Proposed Changes:

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled Yes
Supply Cap (weETH) no change
Borrow Cap (weETH) no change
Debt Ceiling -
LTV 72.50%
LT 75.00%
Liquidation Bonus 7.50%
Liquidation Protocol Fee 10.00%
Variable Base 0.0%
Variable Slope1 7.00%
Variable Slope2 300.00%
Uoptimal 35.00%
Reserve Factor 45.00%
Stable Borrowing Disabled
Flashloanable Yes
Siloed Borrowing No
Borrowed in Isolation No
E-Mode Category ETH-correlated

Disclaimer

The ACI is not presenting this ARFC on behalf of any third party and is not compensated for creating this ARFC.

Next Steps

  1. If consensus is reached on this [ARFC], escalate this proposal to the Snapshot stage.
  2. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived via CC0.

2 Likes

We support the proposed updates to weETH IR curves, aligning with those on Ethereum.

Currently, the borrowing cap on Arbitrum is set at 13% of the supply cap, indicating that at full cap utilization, the utilization rate cannot reach the suggested UOptimal. We will take this into account in future cap recommendations to enable higher utilization rates.

For Base, since the asset has not yet been onboarded, we recommend setting the initial borrow cap at 60 weETH, representing 40% of the recommended supply cap.

2 Likes

It would be preferred to keep the borrowing cap of weETH on Arbitrum at 13% of the supply cap (or less) as increasing this will dilute the points yield (specifically EigenLayer points) for weETH suppliers. In fact, it was already raised recently from 10% so lenders are already being diluted. In an ideal case, we can return this ratio to 10% if possible by either increasing the supply cap or reducing the borrow cap.

The current proposal has been escalated to ARFC Snapshot.

We encourage everyone to participate.

1 Like

arfc-onboard-weeth-to-aave-v3-on-ethereum/16758/11

What will be charged , aren’t they same as current rates ?

After Snapshot monitoring, the current [ARFC Snapshot] ended recently, reaching both Quorum and YAE as winning option, with 675K votes.

Therefore the proposal has passed.
Publication of an AIP for final confirmation to Adjust Interest Rate Curve for weETH on Arbitrum has already been done, vote will open shortly.