# \[ARFC\] Chaos Labs - Stablecoin IR Curves Updates **URL:** \ **Category:** Governance\ **Created:** [December 13, 2023, 9:48pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838 "2023-12-13T21:48:06Z")\ **Posts on this page:** 7\ **Page:** 1
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [December 13, 2023, 9:48pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/1 "2023-12-13T21:48:06Z")
# Summary A proposal to increase stablecoin Interest Rate parameters across all Aave deployments. ## Motivation Following the implementation of [AIP-375](https://app.aave.com/governance/proposal/375/) to increase stablecoin borrow rates across Aave V2 and V3 deployments, we continue to observe volatility in borrow rates across Aave deployments. As we [highlighted](https://governance.aave.com/t/arfc-increase-optimal-borrow-rates-for-ethereum-stablecoin-markets/15096/3) in the recent proposal, we recommend a more aggressive increase of the Slope1 parameter to stabilize borrows under the UOptimal point. ### Previous IR Curve modification impact analysis **Stablecoins Total Supply and Borrow:** The data from the charts reflects an overall increase in both the supply and borrowing of stablecoins on the Ethereum V3 platform. From November 25th to December 12th we observed the following increases in supply and borrow across USDC, USDT, and DAI: | Asset | Total Supply (M) - Nov 25 | Total Supply (M) - Dec 12 | Total Supply Increase (M) | Supply Increase (%) | Total Borrow (M) - Nov 25 | Total Borrow (M) - Dec 12 | Total Borrow Increase (M) | Borrow Increase (%) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | USDC | 423 | 445 | 22 | 5.20% | 378 | 406 | 28 | 7.40% | | USDT | 347 | 366 | 19 | 5.40% | 265 | 332 | 67 | 25.20% | | DAI | 78 | 86 | 8 | 10.20% | 70 | 79 | 9 | 12.80% | | Total | 848 | 897 | 49 | 20.80% | 713 | 817 | 104 | 45.40% | We’ve observed an overall $49M increase (20.8%) in supply across USDC, USDT and DAI on Ethereum V3, and a $104M increase (45.4%) in borrows. This general uptrend suggests that the AIP’s changes were well received, with higher utilization for the assets following the parameter updates. ![Frame 78017](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/c/c9559a44ca0e55564c92c4ed6407f2ad004349c4.png) ![Frame 78018](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/d/db8395a743577c9f50dea6aef0d96c90c216248c.png) **Utilization Rate Analysis:** Our continuous monitoring of the utilization rates post AIP-375, setting Slope1 at 5%, shows sustained demand. When looking at the percentage of times in which utilization was above UOptimal, we can see that the AIP-375 increase didn’t stabilize the utilization at or below the UOptimal. This could also be due to changing market dynamics with the recent increase in crypto asset prices. During two distinct 16-day intervals, we observed the following: - **Pre-AIP-375 Period (11.09.23 - 11.25.23)** - **Post-AIP-375 Period (11.25.23 - 12.12.23)** **Percentage of Time of Utilization Above UOptimal:** | Asset | Before AIP-375 | After AIP-375 | | --- | --- | --- | | USDC | 69.53% | 77.34% | | USDT | 63.02% | 33.09% | | DAI | 48.70% | 63.24% | ![Frame 78019 (1)](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/2feeb9df990be18acb97faec2f6d6b886842278b.png) The data demonstrates strong borrowing activity persisting after the interest rate curve adjustments, supporting a move towards higher interest rates. This pattern reflects a consistent, resilient demand among the top stablecoins on Ethereum V3. **Borrow Rate Analysis:** After executing the previous proposal, we continue to observe fluctuations in borrow rates, suggesting the previous increase did not achieve the anticipated stabilization. This situation suggests that further adjustments of the interest rate parameters are necessary to achieve more consistent and stable borrowing rates. ![Frame 78020](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/7/770148d2d2b9b4cf2958438172da1a342c3e0a89.png) ![403641469_370769045314386_6540288414402371375_n (1)](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/1/1ce3d390acef24e54d40195d07dd63a39fe16f6b.png) ### Recommendation **Adjust Slope1 of stablecoins to 6%** The analysis indicates a necessity for further refinement of stablecoin interest rates, to achieve a more predictable and stable borrowing rate with an equilibrium utilization under the UOptimal point. Therefore, we propose increasing Slope1 to 6% for stablecoins across all Aave deployments, in this iteration. Following this increase, we will continue monitoring the usage and equilibrium rate and make additional recommendations as necessary. # Specification | Market | Asset | Current Slope1 | Rec Slope1 | | --- | --- | --- | --- | | Ethereum V2 | USDC | 5% | 6% | | Ethereum V2 | USDT | 5% | 6% | | Ethereum V2 | DAI | 5% | 6% | | Ethereum V2 | FRAX | 5% | 6% | | Ethereum V2 | sUSD | 5% | 6% | | Ethereum V2 | GUSD | 5% | 6% | | Ethereum V2 | LUSD | 5% | 6% | | Ethereum V2 | USDP | 5% | 6% | | Ethereum V3 | USDC | 5% | 6% | | Ethereum V3 | USDT | 5% | 6% | | Ethereum V3 | DAI | 5% | 6% | | Ethereum V3 | FRAX | 5% | 6% | | Ethereum V3 | LUSD | 5% | 6% | | Avalanche V2 | USDC | 5% | 6% | | Avalanche V2 | USDT | 5% | 6% | | Avalanche V2 | DAI | 5% | 6% | | Avalanche V3 | USDC | 5% | 6% | | Avalanche V3 | USDT | 5% | 6% | | Avalanche V3 | DAI | 5% | 6% | | Avalanche V3 | MAI | 5% | 6% | | Avalanche V3 | FRAX | 5% | 6% | | Polygon V2 | USDC | 5% | 6% | | Polygon V2 | USDT | 5% | 6% | | Polygon V2 | DAI | 5% | 6% | | Polygon V3 | USDC.e | 7% | No Change | | Polygon V3 | USDC | 5% | 6% | | Polygon V3 | USDT | 5% | 6% | | Polygon V3 | DAI | 5% | 6% | | Polygon V3 | MAI | 5% | 6% | | Optimism V3 | USDC.e | 7% | No Change | | Optimism V3 | USDC | 5% | 6% | | Optimism V3 | USDT | 5% | 6% | | Optimism V3 | DAI | 5% | 6% | | Optimism V3 | sUSD | 5% | 6% | | Optimism V3 | LUSD | 5% | 6% | | Optimism V3 | MAI | 5% | 6% | | Arbitrum V3 | USDC | 5% | 6% | | Arbitrum V3 | USDC.e | 7% | No Change | | Arbitrum V3 | USDT | 5% | 6% | | Arbitrum V3 | DAI | 5% | 6% | | Arbitrum V3 | LUSD | 5% | 6% | | Arbitrum V3 | FRAX | 5% | 6% | | Arbitrum V3 | MAI | 5% | 6% | | Base V3 | USDC | 5% | 6% | | Base V3 | USDbC | 7% | No Change | | Metis V3 | USDC | 5% | 6% | | Metis V3 | USDT | 5% | 6% | | Gnosis V3 | USDC | 5% | 6% | | Gnosis V3 | xDAI | 5% | 6% | # Next Steps 1. Following community feedback, submit the ARFC for a snapshot vote for final approval. 2. If consensus is reached, submit an Aave Improvement Proposal (AIP) to implement the proposed updates. # Disclaimer Chaos Labs has not been compensated by any third party for publishing this ARFC. # Copyright Copyright and related rights waived via [CC0](https://creativecommons.org/publicdomain) ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [December 18, 2023, 8:28pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/2 "2023-12-18T20:28:59Z")
We have published a [Snapshot](https://snapshot.org/#/aave.eth/proposal/0x7c158085e4aa7de3a337d0a84a31eed65a7f7f9e3dce45ec90205b448e6f7ab9) for the community to vote on, starting in 24h. We thank you in advance for your participation in the vote. ---
**Author:** ![Gauntlet](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/gauntlet/32/4064_2.png) [@Gauntlet](https://governance.aave.com/u/Gauntlet)\ **Post date:** [December 19, 2023, 8:33pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/3 "2023-12-19T20:33:47Z")
## Summary Gauntlet supports the proposed increase for slope1 from 5% to 6% for stablecoins across all Aave deployments. ## High Utilization Rate Stablecoin borrowing demand remains high and utilization has remained at Uopt after AIP-375. For USDC and USDT utilization rates on other markets, please find them on [Gauntlet Risk Dashboard](https://risk.gauntlet.xyz/protocols/aave). **AAVE V3 Ethereum USDC** ![Screenshot 2023-12-19 at 2.11.39 PM](https://hackmd.io/_uploads/BJGbiPJPp.png) **AAVE V3 Ethereum USDT** ![Screenshot 2023-12-19 at 2.12.42 PM](https://hackmd.io/_uploads/ryzSivJvp.png) **AAVE V3 Polygon USDC** ![Screenshot 2023-12-19 at 2.14.26 PM](https://hackmd.io/_uploads/Skq2jvJDT.png) **AAVE V3 Polygon USDT** ![Screenshot 2023-12-19 at 2.13.54 PM](https://hackmd.io/_uploads/H1Uaswkwa.png) ## Comparison to Tradfi Rates Comparison with Tradfi rates shows the current slope 1 for stablecoins remains less than the Federal Funds Rate of 5.33%. ![Screenshot 2023-12-18 at 4.08.11 PM](https://hackmd.io/_uploads/SkmRNN086.png) Source: [newyorkfed.org](https://www.newyorkfed.org/markets/reference-rates/effr) ## Recommendations We support increasing Slope1 to 6% for stablecoins across all Aave deployments. ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [December 21, 2023, 11:59pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/4 "2023-12-21T23:59:52Z")
We have updated the specification section to include several stablecoins that were not included in the original post, including: - Gnosis Chain stablecoins - DAI on Ethereum V2+V3 - native USDC recently added to the Optimism, Polygon, and Base deployments. ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [December 27, 2023, 4:39pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/5 "2023-12-27T16:39:33Z")
The proposal to [Onboard Native USDC to Aave V3 Markets](https://governance.aave.com/t/arfc-onboard-native-usdc-to-aave-v3-markets/15720) increased slope1 for bridged USDC on Polygon, Arbitrum, Base and Optimism to 7%, intending to incentivize native USDC usage. Therefore, we have updated the specification section above to exclude these assets from this proposal. ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [January 8, 2024, 12:33pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/6 "2024-01-08T12:33:17Z")
[AIP-3](https://app.aave.com/governance/proposal/v3/3/) has been published for this proposal, with voting starting in less than 24h. Thank you in advance for your participation in the vote. ---
**Author:** ![system](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e11637c36f45ffa158f2146f5c19438d46e0824d.svg) [@system](https://governance.aave.com/u/system)\ **Post date:** [February 7, 2024, 12:34pm UTC](https://governance.aave.com/t/arfc-chaos-labs-stablecoin-ir-curves-updates/15838/7 "2024-02-07T12:34:01Z")
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