Summary
Chaos Labs supports the proposal to increase the Slope1 parameter of all stablecoins across all Aave v3 deployments. This change aims to improve user experience by stabilizing the rates at the market’s demand.
Motivation
Given the recent increase in the DSR and the introduction of the SSR, which together have driven rates from 5.5% to 9.5% since the last adjustment to Aave v3 Stablecoin Interest Rates, along with the rise in global leverage demand and thus heightened demand for sUSDe (currently yielding 29%), it is crucial to update Aave’s stablecoin interest rates to better align with market conditions. Previously, we recommended lowering rates in August, in tandem with the DSR’s reduction from 6.5% to 5.5%.
The change is especially important given the substantial increase in interest rate volatility experienced in recent months. The lack of interest rate stability negatively impacts the user experience of borrowers on the Aave platform and negatively affects leveraging strategies.
Over the last 30 days, the average interest rate of the stablecoins on the Ethereum Main market increased and showed a sustained upward trend, which led to an average weekly interest rate of roughly 10% for USDC and USDT and over 22% for DAI. The discrepancy between DAI and USDC/USDT is likely caused by the migration to USDS and its higher underlying yield.
We note that the increase in interest rate significantly increased the deposits of the assets, which has led to the stablecoin supply on Aave Ethereum Main instance increasing between 20% and 50%, as can be seen in the plot below.
Following our methodology laid out in previous recommendations, we recommend closely aligning Slope1 with the DSR to reduce the opportunity for rate arbitrage and ensure that Aave minimizes adverse interest rate variance in the market. As a result, we propose increasing Slope1 to the DSR value, setting it at 9.5%.
Caveats:
- We do not recommend an update to lower-cap stablecoins on Ethereum V2, as they are currently being deprecated.
- We recommend increasing the Slope 1 of bridged USDC (USDC.e/USDbC) by an additional 1% on all deployments. This will give them a higher interest rate to motivate the borrowing of native USDC.
- A concurrent AIP is currently live to increase the Slope1 and Base rate of USDS on Ethereum Core and Prime Instances, and as such will be left out of the specification.
- Chaos Labs will separately propose a change of interest rate parameters for frozen stablecoins across all instances.
Specification
| Market | Asset | Current Slope1 | Recommended Slope1 |
|---|---|---|---|
| Ethereum V2 | USDC | 5.5% | 9.5% |
| Ethereum V2 | USDT | 5.5% | 9.5% |
| Ethereum V2 | DAI | 5.5% | 9.5% |
| Ethereum V3 Core | USDC | 5.5% | 9.5% |
| Ethereum V3 Core | USDT | 5.5% | 9.5% |
| Ethereum V3 Core | USDe | 9.0% | 9.5% |
| Ethereum V3 Core | FRAX | 5.5% | 9.5% |
| Ethereum V3 Core | DAI | 5.5% | 9.5% |
| Ethereum V3 Core | LUSD | 5.5% | 9.5% |
| Ethereum V3 Core | PYUSD | 5.5% | 9.5% |
| Ethereum V3 Core | crvUSD | 5.5% | 9.5% |
| Ethereum V3 Prime | USDC | 5.5% | 9.5% |
| Avalanche V3 | USDC | 5.5% | 9.5% |
| Avalanche V3 | USDT | 5.5% | 9.5% |
| Avalanche V3 | DAI | 5.5% | 9.5% |
| Avalanche V3 | FRAX | 5.5% | 9.5% |
| Polygon V3 | USDC | 5.5% | 9.5% |
| Polygon V3 | USDC.e | 10.0% | 10.5% |
| Polygon V3 | USDT | 5.5% | 9.5% |
| Polygon V3 | DAI | 5.5% | 9.5% |
| Polygon V3 | EURS | 5.5% | 9.5% |
| Optimism V3 | USDC | 5.5% | 9.5% |
| Optimism V3 | USDT | 5.5% | 9.5% |
| Optimism V3 | DAI | 5.5% | 9.5% |
| Optimism V3 | sUSD | 5.5% | 9.5% |
| Optimism V3 | LUSD | 5.5% | 9.5% |
| Optimism V3 | USDC.e | 6.5% | 10.5% |
| Arbitrum V3 | USDC | 5.5% | 9.5% |
| Arbitrum V3 | USDC.e | 6.5% | 10.5% |
| Arbitrum V3 | USDT | 5.5% | 9.5% |
| Arbitrum V3 | DAI | 5.5% | 9.5% |
| Arbitrum V3 | LUSD | 5.5% | 9.5% |
| Arbitrum V3 | FRAX | 5.5% | 9.5% |
| Arbitrum V3 | GHO | 12% | 9.5% |
| Base V3 | USDC | 5.5% | 9.5% |
| Base V3 | USDbC | 10.0% | 10.5% |
| Metis V3 | m.USDC | 6.0% | 9.5% |
| Metis V3 | m.USDT | 6.0% | 9.5% |
| Metis V3 | m.DAI | 7.0% | 9.5% |
| BNB Chain V3 | USDT | 5.5% | 9.5% |
| BNB Chain V3 | USDC | 5.5% | 9.5% |
| BNB Chain V3 | FDUSD | 5.5% | 9.5% |
| Scroll V3 | USDC | 5.5% | 9.5% |
| Gnosis V3 | WXDAI | 5.5% | 9.5% |
| Gnosis V3 | USDC | 5.5% | 9.5% |
| Gnosis V3 | EURe | 5.5% | 9.5% |
| Gnosis V3 | USDC.e | 9% | 10.5% |
| ZKSync V3 | USDC | 5.5% | 9.5% |
| ZKSync V3 | USDT | 5.5% | 9.5% |
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
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