As a followup to the community, option 1 was chosen on Gauntlet’s previous snapshot, which lowered slope 1 for WETH on all v3 to 3.3%. On the other hand, option 2 recommended to remove the base rate for WETH to match v3 Ethereum. The AIP is published here.
Option 1 was intended to be a superset of option 2 and also intended to lower the base rate to 0 for WETH, in order to drive utilization to Uopt. This language was not specified in the snapshot. To be extra clear with the community, we put out this new snapshot specifically for lowering the base rate to 0 for WETH on v3 markets, here.
For a more concrete example on how IR will change -
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Currently, utilization on Arbitrum v3 is 43%, Uopt = 80%.
- The AIP to lower WETH slope 1 to 3.3% on all v3 markets except Ethereum will adjust current Arbitrum WETH borrow rate from ~3% to ~2.7%. We will put up this AIP today.
- When utilization = Uopt, WETH borrow rate will be 4.3% with the AIP.
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This rate may be too high to drive utilization to Uopt, given current LST staking yields.
- Removing the Base Rate will cause the WETH borrow rate to be 3.3% at Uopt = 80%, which is more conducive to LST strategies.
- This may help to increase WETH borrows to drive utilization to Uopt.