[ARFC] increase borrow cap for MAI Aave Polygon V3

Governance
1

[ARFC] increase borrow cap for MAI Aave Polygon V3

title: [ARFC] increase caps for MAI Aave Polygon V3

Author: @marczeller - Aave Chan Initiative

Dated: 2023-02-02

Summary

MAI is a decentralized overcollateralized stablecoin minted by the QiDAO protocol

MAI is minted by qiDAO protocol users by locking collateral in vaults.

For more information about MAI please refer to MAI V3 ARC

This ARFC presents the Aave governance with the opportunity to increase MAI borrow cap on the Aave V3 polygon market.

Abstract

This ARFC proposes to increase the MAI borrow cap to 1M MAI to reflect market demand for this asset.

Motivation

Due to market demand for MAI liquidity, MAI utilization is close to borrow cap, and the current borrow cap is set at a level that has a probable effect on both MAI supplied (total cap making it impossible to reach uOptimal at the current level of liquidity) and drives out potential demand.

Allowing an increase of this borrow cap will allow supply and demand to find another equilibrium for the benefit of liquidity providers, borrowers & protocol revenue with expected increased borrow demand.

The new proposed cap is set at a level that allows the market to find this new equilibrium while maintaining a conservative approach.

Specification

Ticker: MiMATIC (MAI)

Contract Address: 0xa3Fa99A148fA48D14Ed51d610c367C61876997F1

Risk Parameter Value
Isolation Mode YES
Enable Borrow YES
Enable Collateral YES
Loan To Value 75%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 10%
Liquidation Protocol Fee 0.1
Borrow Cap 600k
Supply Cap 1,100k
Debt Ceiling N/A
Base 0%
Slope1 4%
Uoptimal 90%
Slope2 64%

Disclaimer

The Aave-Chan Initiative is not linked nor paid by QiDAO to publish this AFRC

The ACI supports stablecoin diversity as part of its delegate platform.

Marc Zeller, the founder of ACI, owns some vQI, an LSD of QI, the native asset of QiDAO.

Copyright

Copyright and related rights waived via CC0,

2 Likes
2

Thanks, @MarcZeller - the Gauntlet team is looking into this proposal and will keep the community updated.

1 Like
3

We definitely support this proposal at QiDao. Given ample liquidity for MAI on Polygon, there shouldn’t be any issues with liquidations.

For more information on MAI and its collaterals, please check out our community-run Risk dashboard at https://mai.watch/

4

We have published an updated supply and borrow cap methodology, which we used to propose updates for several assets on Aave V3 Polygon and Arbitrum that have reached or are near full utilization of caps, including MAI - link

Chaos Labs recommends reducing the supply cap of MAI to 1,086,000, doubling the current supply. Given this new supply cap, we recommend setting the borrow cap at 597,300 (0.55*supply cap).
The proposed caps are conservative given MAI’s profile and being listed in isolation mode. However, we wish to be consistent with our recommendations and be able to dynamically increase the caps after analyzing new supplies and borrows.

Current Supply Current Supply Cap Recommended Supply Cap Current Borrow Current Borrow Cap Recommended Borrow Cap
MAI 543,000 100,000,000 1,086,000 359,980 359,980 597,300
2 Likes
5

Gauntlet’s analysis yielded different results (higher caps). However, given that Chaos’s recommendation here still allows room for organic growth, we will not provide an additional option of recommendations for this proposal in order to reduce governance fatigue.

6

Considering both @ChaosLabs & @Pauljlei

we updated the risk parameters of the proposal to reflect @ChaosLabs recommendations (rounded up because I have OCD :smiley: ) and will escalate this proposal to Snapshot.

7

Respectfully disagree with these recommendations to reduce the supply cap and also reduce the proposed increase on the borrow cap for MAI initially suggested on this ARFC.

Over the course of almost 2 years MAI has established a strong reputation as a reliable stablecoin with ample liquidity, particularly on Polygon, where it is available on multiple DEXs such as Uniswap, QuickSwap, Curve, Balancer or KyberSwap.

The current supply is not restricted by the supply cap, but rather by the borrow cap being fully utilized. This, coupled with the isolation mode, severely limits the composability and ability of MAI holders to participate in DeFi strategies and stunts its growth potential. It’s worth noting that when MAI was first approved for listing on Aave V3, it did not have a borrow cap, but rather a very low cap of 359,980 was set after listing, when the Risk Parameter Updates for Aave Polygon Markets were approved on 2022-10-21.

While the existence of borrowing limits is intended to prevent liquidity pool insolvency, this is really unlikely to be an issue for MAI due to its deep and diversified liquidity sources and overcollateralised nature. I believe this provides ample protection against market shocks and make the proposed changes unnecessary.

CC: @Pauljlei @MarcZeller