Hi @Pauljlei,
Thank you for the feedback.
We have amended the forum post, correcting the Slope1 parameter to 3.8% down from 4.8%. The borrow rate at the Upotimal point for wETH is 1% + 3.8% = 4.8% or Base + Slope1 = Borrow Rate. We also took this opportunity to amend some of the text to more clearly communicate the proposed changes.
Lowering the Slope1 for wETH addresses feedback raised by communities who support products that utilise the recursive wstETH/wETH strategy. The current Slope1 parameter, set at 5.75%, was leading to less wETH borrowing over time. Reducing the Slope1 parameter from 5.75% to a comparable 4.8% yield is more supportive of these products. Introducing a Base on wETH, whilst having a lower Slope1 parameter, acts to flatten the Interest Rate curve. This is advantageous to users of the recursive strategy as it softens the rate of change in borrowing costs. However, it does lead to higher borrowing costs compared to the current Interest Rate curve when utilization is less than 41%. Current the utilization is 46%, therefore the recursive strategy generate a higher return.
We prefer keeping v3 and v2 wETH rates the same across both markets and using wstETH parameters to encourage migration.
A small Base fee was introduced on wstETH, which leads to a very small deposit rate on low utilization. A small deposit yield is advantageous to the recursive strategy and is unique to v3, but not really effective at low utilization. When the BorrowCap on wstETH is increased, we expect to increase the Uoptimal parameter and potentially reduce Slope1 subject to the new Uoptimal parameter. Directionally, if any further amendments are made, we are of the opinion it should be to reduce wstETH borrowing costs and increase available liquidity in the Reserve. This leads to higher utilization of both Reserves but is dependent upon borrowing demand for wstETH.