# \[ARFC\] Increase Optimal Borrow Rates for Ethereum Stablecoin Markets

**URL:** <https://governance.aave.com/t/arfc-increase-optimal-borrow-rates-for-ethereum-stablecoin-markets/15096>\
**Category:** Governance\
**Created:** [October 11, 2023, 3:02pm UTC](https://governance.aave.com/t/arfc-increase-optimal-borrow-rates-for-ethereum-stablecoin-markets/15096 "2023-10-11T15:02:56Z")\
**Posts on this page:** 1\
**Showing post:** 2

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**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:** [October 28, 2023, 1:41am UTC](https://governance.aave.com/t/arfc-increase-optimal-borrow-rates-for-ethereum-stablecoin-markets/15096/2 "2023-10-28T01:41:09Z")

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Gauntlet supports the recommendations by @monet-supply. Stablecoin utilization on Ethereum v3 has been [consistently at Uopt](https://risk.gauntlet.network/protocols/aave/markets/ethereum), and US1Y and US2Y yields have been north of 5%, implying that slope 1 could be raised without compromising on utilization.

 ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/6/6f7e6d06ff1eff69315c0d366ea051b7e4d30221.png)

We would also like to propose the following. We will share some more color below.

1. raise slope 1 to 5% for USDC, USDT, DAI, FRAX, LUSD across all v3 deployments
2. raise Uopt to 90% for USDC, USDT, DAI, FRAX, where applicable, across all v3 deployments
3. raise RF from 20% to 25% for USDC, USDT, LUSD on v2 Ethereum

### On raising slope 1 to 5% for USDC, USDT, DAI, FRAX, LUSD for all v3 deployments

Utilization across other chains is also consistently at Uopt. Slope 1 across v3 deployments is 4% for USDT, FRAX, DAI and 3.5% for USDC. Supporting IR parity across deployments also serves to increase borrow revenue without compromising on utilization.

### On raising Uopt to 90% for USDC, USDT, DAI, FRAX, where applicable, across all v3 deployments

[AIP-306](https://app.aave.com/governance/proposal/?proposalId=306), in addition to raising slope 1 to 5% for DAI, also raised Uopt from 80% to 90%. The reduction in DAI borrow rate volatility can also be attributed to this Uopt increase, which allowed more borrowers to come in at slope 1 borrow rates. **Gauntlet believes raising Uopt for USDT, DAI, FRAX can increase borrow revenue without adding excess risk.**

- Currently, USDC is the only stablecoin with Uopt at 90%. The main considerations for setting Uopt to 90% is promoting enough liquidatable supply when liquidations of stablecoin collateral occur.
  - Assuming large market move, only 10% of supply is available for liquidation, instead of 20% should Uopt move to 90% and equilibrium utilization to rest at Uopt.

- **Given the current loanbook for stables, Gauntlet believes increasing Uopt to 90% does not add excess risk.** The below graph shows cumulatively how much of each stablecoin is supplied at each LTV for Ethereum v3.
  - as an example, only 10% of USDC is supplied at 0.6 LTV and higher
  - 10% of DAI is supplied at 0.55 LTV and higher

 ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/f/f4d3c11ccc7aca4144fb86f3c667e97ea6113b82.png)

- Other v3 deployments show similar structure. **The market would need to move considerably abnormally for liquidation capacity to come into question for stablecoin collateralized liquidations for 90% Uopt.**

### On raising RF from 20% to 25% for USDC, USDT, LUSD on v2 Ethereum

AIP-306 also raised DAI RF on v2 Ethereum to 25%. This would bring RF parity for USDC, USDT, and LUSD to DAI, and help encourage supply migration from v2 to v3.

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_[View the full topic](https://governance.aave.com/t/arfc-increase-optimal-borrow-rates-for-ethereum-stablecoin-markets/15096)._