Summary:
A proposal to decrease stablecoin Interest Rate parameters across all Aave deployments.
Motivation
Following the anticipated decrease in DSR—from 13% to 10%—we believe it is prudent to update Aave stablecoin interest rates to best align with the broader market. Previously, we recommended increasing both UOptimal and Slope1 for stablecoins to reduce rate volatility. This recommendation was amended on the news of the DSR increase from 5% to 15%.
The new parameters went into effect on April 4, 2024, and thus far have helped improve rate stability and utilization rates. As part of our ongoing monitoring of broader markets, we note that MakerDAO is in the process of reducing the DAI Savings Rate, which could impact stablecoin rates throughout DeFi.
Following our methodology laid out in previous recommendations, we recommend more closely aligning Slope1 with the DSR to reduce the opportunity of rate arbitrage and ensure that borrow rates remains competitive. As a result, we propose decreasing Slope1 by an equivalent amount from 12% to 9%.
Caveats:
- We do not recommend an update to the following assets on lower-cap stablecoins on Ethereum V2, as they are currently being deprecated.
- Similar to the previous proposals, we recommend bridged USDC.e on all deployments to have a 1% higher slope1 to motivate the borrowing of native USDC.
Specification
| Market | Asset | Current Slope1 | Recommended Slope1 |
|---|---|---|---|
| Ethereum V2 | USDC | 12% | 9% |
| Ethereum V2 | USDT | 12% | 9% |
| Ethereum V2 | DAI | 12% | 9% |
| Ethereum V2 | FRAX | 12% | No Change |
| Ethereum V2 | sUSD | 12% | No Change |
| Ethereum V2 | GUSD | 12% | No Change |
| Ethereum V2 | LUSD | 12% | No Change |
| Ethereum V2 | USDP | 12% | No Change |
| Ethereum V3 | USDC | 12% | 9% |
| Ethereum V3 | USDT | 12% | 9% |
| Ethereum V3 | FRAX | 12% | 9% |
| Ethereum V3 | DAI | 12% | 9% |
| Ethereum V3 | LUSD | 12% | 9% |
| Ethereum V3 | pyUSD | 12% | 9% |
| Ethereum V3 | crvUSD | 12% | 9% |
| Avalanche V2 | USDC.e | 13% | 10% |
| Avalanche V2 | USDT | 12% | 9% |
| Avalanche V2 | DAI | 12% | 9% |
| Avalanche V3 | USDC | 12% | 9% |
| Avalanche V3 | USDT | 12% | 9% |
| Avalanche V3 | DAI | 12% | 9% |
| Avalanche V3 | MAI | 12% | 9% |
| Avalanche V3 | FRAX | 12% | 9% |
| Polygon V2 | USDC | 12% | 9% |
| Polygon V2 | USDT | 12% | 9% |
| Polygon V2 | DAI | 12% | 9% |
| Polygon V3 | USDC | 12% | 9% |
| Polygon V3 | USDT | 12% | 9% |
| Polygon V3 | DAI | 12% | 9% |
| Polygon V3 | MAI | 12% | 9% |
| Polygon V3 | EURA | 12% | 9% |
| Polygon V3 | EURS | 12% | 9% |
| Polygon V3 | jEUR | 12% | 9% |
| Polygon V3 | USDC.e | 13% | 10% |
| Optimism V3 | USDC | 12% | 9% |
| Optimism V3 | USDT | 12% | 9% |
| Optimism V3 | DAI | 12% | 9% |
| Optimism V3 | sUSD | 12% | 9% |
| Optimism V3 | LUSD | 12% | 9% |
| Optimism V3 | MAI | 12% | 9% |
| Optimism V3 | USDC.e | 13% | 10% |
| Arbitrum V3 | USDC | 12% | 9% |
| Arbitrum V3 | USDC.e | 13% | 10% |
| Arbitrum V3 | USDT | 12% | 9% |
| Arbitrum V3 | DAI | 12% | 9% |
| Arbitrum V3 | LUSD | 12% | 9% |
| Arbitrum V3 | FRAX | 12% | 9% |
| Arbitrum V3 | MAI | 12% | 9% |
| Arbitrum V3 | EURS | 12% | 9% |
| Base V3 | USDbC | 13% | 10% |
| Base V3 | USDC | 12% | 9% |
| Metis V3 | m.USDC | 6% | No Change |
| Metis V3 | m.USDT | 6% | No Change |
| Metis V3 | m.DAI | 6% | No Change |
| BNB Chain V3 | USDT | 12% | 9% |
| BNB Chain V3 | USDC | 12% | 9% |
| BNB Chain V3 | FDUSD | 12% | 9% |
| Scroll V3 | USDC | 12% | 9% |
| Gnosis V3 | WXDAI | 12% | 9% |
| Gnosis V3 | USDC | 12% | 9% |
| Gnosis V3 | EURe | 12% | 9% |
Next Steps
- Following community feedback, submit an Aave Improvement Proposal (AIP) to implement the proposed updates.
- We believe this adjustment will align the protocol’s rates more closely with current market conditions and borrower behavior. Based on the outcomes, potential future steps include:
- Further adjustment of Slope 1: Depending on the market’s and community’s response to the initial adjustment, additional adjustments in Slope1 could be considered to optimize the IR curves further.
As always, our priority remains to monitor these developments closely and provide timely, data-driven recommendations to maintain Aave’s competitive edge and market responsiveness.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0