[ARFC] Stablecoin IR Curve Amendment on Aave V2 and V3 - 05/13/2024

Summary:

A proposal to decrease stablecoin Interest Rate parameters across all Aave deployments.

Motivation

Following the anticipated decrease in DSR — from 10% to 8% — we believe it is prudent to update Aave stablecoin interest rates to best align with the broader market. Previously, we recommended reducing rates concurrent with the last DSR decrease from 13% to 10% in April.

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The new parameters went into effect on May 6, 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 closely aligning Slope1 with the DSR to reduce the opportunity of rate arbitrage and ensure that Aave remains competitive. As a result, we propose decreasing Slope1 by an equivalent amount: from 9% to 7%.

Caveats:

  1. We do not recommend an update to the following assets on lower-cap stablecoins on Ethereum V2, as they are currently being deprecated.
  2. 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 9% 7%
Ethereum V2 USDT 9% 7%
Ethereum V2 DAI 9% 7%
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 9% 7%
Ethereum V3 USDT 9% 7%
Ethereum V3 FRAX 9% 7%
Ethereum V3 DAI 9% 7%
Ethereum V3 LUSD 9% 7%
Ethereum V3 pyUSD 9% 7%
Ethereum V3 crvUSD 9% 7%
Avalanche V3 USDC 9% 7%
Avalanche V3 USDT 9% 7%
Avalanche V3 DAI 9% 7%
Avalanche V3 MAI 9% 7%
Avalanche V3 FRAX 9% 7%
Polygon V3 USDC 9% 7%
Polygon V3 USDT 9% 7%
Polygon V3 DAI 9% 7%
Polygon V3 MAI 9% 7%
Polygon V3 EURA 9% 7%
Polygon V3 EURS 9% 7%
Polygon V3 jEUR 9% 7%
Polygon V3 USDC.e 10% 8%
Optimism V3 USDC 9% 7%
Optimism V3 USDT 9% 7%
Optimism V3 DAI 9% 7%
Optimism V3 sUSD 9% 7%
Optimism V3 LUSD 9% 7%
Optimism V3 MAI 9% 7%
Optimism V3 USDC.e 10% 8%
Arbitrum V3 USDC 9% 7%
Arbitrum V3 USDC.e 10% 8%
Arbitrum V3 USDT 9% 7%
Arbitrum V3 DAI 9% 7%
Arbitrum V3 LUSD 9% 7%
Arbitrum V3 FRAX 9% 7%
Arbitrum V3 MAI 9% 7%
Arbitrum V3 EURS 9% 7%
Base V3 USDbC 10% 8%
Base V3 USDC 9% 7%
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 9% 7%
BNB Chain V3 USDC 9% 7%
BNB Chain V3 FDUSD 9% 7%
Scroll V3 USDC 9% 7%
Gnosis V3 WXDAI 9% 7%
Gnosis V3 USDC 9% 7%
Gnosis V3 EURe 9% 7%

Next Steps

  1. Following community feedback, submit an Aave Improvement Proposal (AIP) to implement the proposed updates.
  2. 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 Slope1: Depending on the market’s and community’s response to the initial adjustment, additional adjustments in Slope1 could be considered to further optimize the IR curves.

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.

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Given the ongoing efforts to deprecate v2 markets, we updated the specification and removed Polygon and Avalanche v2 stablecoins from this proposal.