[ARFC] MaticX Polygon v3 Upgrade

Below are Gauntlet’s Recommendations:

LT/LTV

LT → 67%

LTV → 58%

image

The above is a 15-minute MATICX/MATIC trajectory over the past few months. We note the maximum dislocation was roughly 1.5% during early November. The positive drift of MATICX/MATIC can be attributed to MATICX gradually accruing yield over time.

Moreover, unlike wstETH, MATICX can be directly redeemed into MATIC via smart contract, in addition to the market. The published exchange rate via StaderLabs is 1.0515, while the market rate is 1.0503, which reflects the 90-checkpoint delay associated with unstaking MATIC.

We propose increasing the LT from 65% to 67% and the LTV from 50% to 58% to better capture its risk profile and bring it more in line with other staking derivatives in relation to their underlying (i.e., wstETH has 79.5% LT, WETH has 82.5% LT on v3 Ethereum) while taking into account its inherent risk as a derivative of MATIC.

Supply/Borrow Cap

Supply cap → 8.6M

Borrow cap → 5.2M

Per our supply/borrow cap methodology, Gauntlet analyzes a number of metrics to holistically capture the risk profile of an asset in order to create caps that both minimize tail risk and encourage protocol growth.

Our conservative recommendation for the supply cap for MaticX, after considering its price manipulation potential, DEX liquidity, and its circulating supply, comes to 5.2M. Our aggressive recommendation comes to 8.6M. It is up to the community to align on risk preferences, as we note in this thread here. Please note that aggressive recommendations align with higher risk tolerance as we discuss in that thread.

Given the current supply of 4.1M and the current cap of 6M, we recommend that any supply cap increases for now are upper bounded by our aggressive recommendation of 8.6M. As Chaos mentions, it is not prudent to draw upon anticipated supply and liquidity to formulate current parameters.

Our conservative recommendation for the borrow cap comes out to 5.2M. Given that borrowing has not been enabled yet, 5.2M will be an initialization cap that mitigates tail risks while giving ample exploration opportunity for MATICX borrowing usage.

Interest Rate

The proposed IR curve is inconsistent with the risk profile of MATICX relative to MATIC and wstETH - in particular, the proposed Uoptimal as well as Slope 2. Given that MATICX is less established (lower volumes, lower market cap, lower circulating supply) than wstETH/stETH, Gauntlet’s analysis shows that the proposed IR curve is too aggressive compared to the curve for wstETH.

Gauntlet recommends Uoptimal = 45% and Slope2 = 150% to better capture the risk profile for MATICX in relation to wstETH.

In addition, Gauntlet has analyzed the conversion rate of MaticX. The conversion rate is determined by totalShares / totalPooledMatic, which change together during the mint and withdraw functions via the sendMessageToChild function. This seems to be the only place where these numbers are adjusted.

totalShares refers to the total amount of MaticX in existence, which only seems to change during burn/mints

totalPooledMatic sums all the staked Matic, so it seems like users need to stake Matic to affect this number.

There does not seem to be a capability for the contract to examine how much MaticX it has and add to the totalSupply. Moreover, any staking call is associated with a mint call (submit function), so users can’t stake without minting MaticX.