Thank you all for the feedback. After continued analysis over the past couple of weeks, we aim to move forward with the following. Combined together, the following will help balance between risk with insufficient liquidation capacity during large market moves, while continuing to incentivize recursive LST borrowing strategies.
Proposal to lower WETH Uopt on Ethereum v3 from 90% to 80%.
Currently, there may be insufficient WETH to facilitate liquidations during increased volatility - this proposal aims to double the available WETH for liquidations should utilization for WETH be at Uopt = kink.
Our recommendation with more analysis is here. We aim to put up snapshot on 2023.09.11.
Snapshot for WETH IR slope 1
We aim to put up a snapshot to adjust WETH Slope 1 on 2023.09.11. It will include the following options.
| Options | Asset | Description | Recommendation |
|---|---|---|---|
| 1 | WETH | (lower slope 1 below staking yield) | lower slope 1 on all v3 to 3.3% |
| 2 | WETH | (match v3 Ethereum) | remove base rate of 1% on all v3, excl Ethereum v3 |
We continue to recommend option 1 in order to facilitate LST recursive strategies due to lowering LST yields.
WMATIC next steps
Due to WMATIC utilization moving towards the kink in the past week, we aim to delay our snapshot to move WMATIC Slope 1 to 4.3%. Analysis of WMATIC utilization shows that WMATIC borrows have not increased, but rather WMATIC supply has decreased and converted into STMATIC. These STMATIC positions are collateralizing stablecoin borrowing, which we have analyzed considerably above.
To address the decreasing MATIC LST liquidity as highlighted here and in our original post we aim to put up a snapshot to lower STMATIC and MaticX non-emode LT next week as well, to mitigate risky stablecoin borrowing.
We will provide more analysis in that proposal.