Thanks for pushing this forward, @TokenLogic. Gauntlet supports these recommendations to lower slope 1 for WMATIC. Much of our reasoning remains similar to before, we encourage the community to check out our previous analysis for more detail.
At a high level, lowering slope 1 for WMATIC may help to
- Increase WMATIC borrowing and utilization
- Incentivizing MATIC LST collateralized recursive borrowing by facilitating profitability
- Lower risks associated with increased stablecoin borrowing against LST collateral, amidst lower MATIC LST liquidity
Back in September, we delayed our original recommendation to lower Slope 1 to 4.3% due to utilization spiking to Uopt. Decreasing slope 1 when utilization is at Uopt was unlikely to increase borrows further.
Additional recommendations
We also recommend an option 2 to lower slope 1 to 4.3% to allow profitable recursive loops across both MaticX (~4.85% APR) and stMATIC (~4.3% APR) when utilization = Uopt.
- High spread between MaticX yield with stMATIC yield may cause equilibrium borrow rates for slope 1 = 5% to be higher than stMATIC yield.
- As a result, lowering slope 1 to 4.3% may help increase recursive borrowing for stMATIC collateral more so than setting slope 1 to 5%.
- Facilitating profitable recursive loops for stMATIC collateral reduces its risk profile.
From a protocol revenue perspective,
- Compared to current WMATIC IR parameters, this option generates more borrow revenue should WMATIC utilization increase > 69%
- Compared to slope 1 of 5%, assuming equilibrium borrow rates of 4.7%, this option generates slightly less borrow revenue (~$20k annualized) at utilization = Uopt
This option continues to preserve considerable supplier advantage on v3 Polygon relative to v2 Polygon for WMATIC (1.7% to 0.5% APR), so we do not expect to see reverse migration of WMATIC back to v2.