Gauntlet recommendation to lower stMATIC, MaticX non-emode LT
Summary
Gauntlet recommends lowering stMATIC, MaticX non-emode LT to improve the risk profile associated with MATIC LSTs.
Reducing MATIC LST non-emode LT to lower borrowing power can help combat the following.
- Risks of reduced WMATIC supply in the future, which may cause long-term growth risk for Polygon v3
- The staking yield from stMATIC and MaticX can offset borrowing costs for stablecoins.
- As a result, without sufficiently lower non-emode borrowing power for LST (or some other tradeoff), this may cause users to migrate their collateral from WMATIC to stMATIC or MaticX for stablecoin borrowing.
- WMATIC supply is incredibly important to the sustainability of Polygon v3 as the source of lending for LST-WMATIC recursive strategies.
- Risks of reduced capacity for recursive LST - WMATIC borrowing
- Risks associated with increased stablecoin borrowing against LST collateral, amidst decreasing MATIC LST liquidity
We welcome the commmunity to read our below analysis for more color.
Recommendations
We present two options for the community.
| Option | stMATIC LT changes | MaticX LT changes | stMATIC LTV changes | MaticX LTV changes |
|---|---|---|---|---|
| 1 | 0.65 → 0.60 | 0.67 → 0.62 | 0.50 → 0.45 | 0.58 → 0.45 |
| 2 | 0.65 → 0.56 | 0.67 → 0.58 | 0.50 → 0.40 | 0.58 → 0.40 |
For transparency, we recommend gradually reducing stMATIC and MaticX LT to 0.37, roughly half that of WMATIC LT. The above recommendations will be the first iteration of our recommendations.
Option 1 will liquidate 1 account with ~$10 of borrows, option 2 will liquidate ~$26k worth of borrows as of data on 2023-09-15. See the appendix for the full breakdown of accounts.
Analysis
Higher non-emode borrowing power for LST may disincentivize WMATIC collateralized stablecoin borrowing.
- Collateralizing WMATIC to borrow stablecoins represents a method for users to obtain leverage and has traditionally been the largest use case outside of emode for Polygon v3.
- Since MATIC LST naturally capture MATIC staking interest, collateralizing MATIC LST to borrow stablecoins is a superior strategy to collateralizing WMATIC to borrow stablecoins.
- Accrued staking yield can offset the cost to borrow stablecoins.
- Without lower non-emode borrowing power for LST (or some other tradeoff), users may be incentivized to migrate their WMATIC - stablecoin positions into MATIC LST - stablecoin positions.
- This has empirically begun happening with whale user 0x1e5b92c66e4cad7963e8dacf1e8d642304c172c8.
- Across Polygon v3, WMATIC supply has ~35% from 70m to 45m over the past few months.
As a result, lowered WMATIC supply hinders LST - WMATIC recursive borrowing.
- Smaller WMATIC supply indicates less WMATIC borrow can be taken out before rates spike due to slope 2.
- Gauntlet has highlighted decreasing emode borrowing and the associated added risk in our original WMATIC IR recommendations.
Decreasing LST liquidity increases the risk profile for LST collateralized stablecoin borowing.
- Decreasing liquidity for MATIC LSTs increases their risk profile, especially since they are collateralizing more stablecoin borrows. This decreasing liquidity may impact healthy liquidations during high volatility. Reducing MATIC LSTs LT will lower the borrowing power of these LSTs outside of emode and thus improve their risk profile.
Next steps
Welcome community feedback and aim to put up snapshot with the above two options on 2023-09-26.
Appendix - Liquidated accounts
Option 1
Liquidated accounts
| user_address | supply_balance_usd | borrow_balance_usd | hf | hf_new | supplied_symbols | borrowed_symbols |
|---|---|---|---|---|---|---|
| 0x15429b6fc30fa2eb44c80884cfe4c50960283d1f | 9.0 | 6.13 | 1.04 | 1.00 | [WMATIC, USDC, stMATIC, DAI] | [USDC] |
Accounts at the border (new HF <= 1.03)
| user_address | supply_balance_usd | borrow_balance_usd | hf | hf_new | supplied_symbols | borrowed_symbols |
|---|---|---|---|---|---|---|
| 0x15429b6fc30fa2eb44c80884cfe4c50960283d1f | 9.0 | 6.13 | 1.04 | 1.00 | [WMATIC, USDC, stMATIC, DAI] | [USDC] |
| 0x22bfb2e7d20546216982bcff13446d29eea359d4 | 359.0 | 219.15 | 1.08 | 1.00 | [WMATIC, stMATIC] | [SUSHI, agEUR, EURS] |
| 0xdbfe5e94a0208c5324c7e4396dcebd312af01b33 | 6.0 | 4.50 | 1.01 | 1.00 | [USDC, stMATIC, AAVE] | [USDC, GHST, DAI] |
| 0x167b799026473d79c2c75309b94a5648794e2a40 | 43729.0 | 25510.72 | 1.11 | 1.03 | [WMATIC, stMATIC] | [USDC] |
| 0xfe65ca7a0ed4bdbdcecf8ab99d2f4536ebddccf3 | 17.0 | 10.19 | 1.11 | 1.03 | [stMATIC] | [DAI] |
| 0xaa4f6ebddfecc945844a60d43415b5c3a53e803c | 0.0 | 0.08 | 1.07 | 1.02 | [WMATIC, MaticX] | [WSTETH] |
| 0xc47df064bdc1b2cbf6fd85aae4db8beaf7c350ac | 927.0 | 557.50 | 1.11 | 1.03 | [MaticX] | [USDC] |
Option 2
Liquidated accounts| user_address | supply_balance_usd | borrow_balance_usd | hf | hf_new | supplied_symbols | borrowed_symbols |
|---|---|---|---|---|---|---|
| 0xc47df064bdc1b2cbf6fd85aae4db8beaf7c350ac | 927.0 | 557.50 | 1.11 | 0.96 | [MaticX] | [USDC] |
| 0x7c33692980c23c3df99a8cb2ae1405952a6afa3e | 151.0 | 89.17 | 1.13 | 0.98 | [MaticX] | [USDC] |
| 0x777863157576954417bf3bda95ad34dbbfe357c9 | 148.0 | 86.62 | 1.14 | 0.99 | [MaticX] | [USDC] |
| 0xd6ff66977fc45ad25d4f0d3db813d070606d8772 | 52.0 | 30.18 | 1.15 | 0.99 | [MaticX] | [DAI] |
| 0x167b799026473d79c2c75309b94a5648794e2a40 | 43729.0 | 25510.72 | 1.11 | 0.96 | [WMATIC, stMATIC] | [USDC] |
| 0x22bfb2e7d20546216982bcff13446d29eea359d4 | 359.0 | 219.15 | 1.08 | 0.94 | [WMATIC, stMATIC] | [SUSHI, agEUR, EURS] |
| 0xb8d188efcfc9b30d53ceb8bd9f833629481c4b47 | 72.0 | 41.01 | 1.14 | 0.98 | [stMATIC] | [USDC] |
| 0xfe65ca7a0ed4bdbdcecf8ab99d2f4536ebddccf3 | 17.0 | 10.19 | 1.11 | 0.96 | [stMATIC] | [DAI] |
| 0x15429b6fc30fa2eb44c80884cfe4c50960283d1f | 9.0 | 6.13 | 1.04 | 0.96 | [WMATIC, USDC, stMATIC, DAI] | [USDC] |
| 0xc99da3a663604c43f6296f3f95e9ea7b6481f01f | 4.0 | 2.34 | 1.01 | 0.88 | [WBTC, stMATIC] | [WMATIC, MaticX] |
| 0x29e026820d44508fe53f0ac834a3245d2cb817bc | 2.0 | 1.42 | 1.15 | 0.99 | [stMATIC] | [WMATIC] |
Accounts at the border (HF <= 1.03)
| user_address | supply_balance_usd | borrow_balance_usd | hf | hf_new | supplied_symbols | borrowed_symbols |
|---|---|---|---|---|---|---|
| 0xc70f26184fc556bbba9c3078ee35411e42e7b1ac | 52639.0 | 30195.91 | 1.17 | 1.01 | [MaticX] | [WMATIC] |
| 0x82a2f9d1f005b0ed761dfa7285d3eef4e661a2b0 | 13.0 | 7.68 | 1.17 | 1.01 | [MaticX] | [MaticX] |
| 0xdbfe5e94a0208c5324c7e4396dcebd312af01b33 | 6.0 | 4.50 | 1.01 | 1.00 | [USDC, stMATIC, AAVE] | [USDC, GHST, DAI] |
| 0xd23b97041b323176c8b595c85b9851b91922e2a9 | 1.0 | 0.49 | 1.01 | 1.00 | [WMATIC, WBTC, USDC, stMATIC, WETH, DAI, USDT] | [WBTC, GHST, WETH, USDT] |
| 0x2c71c4909e6776c2f48f8999980a10ea1546f6d0 | 5.0 | 2.56 | 1.19 | 1.02 | [stMATIC] | [DAI] |
| 0x0ee01410d9ac0c4ba49a407fe857b5d30d217c21 | 9.0 | 5.10 | 1.19 | 1.03 | [stMATIC] | [USDC] |