[NIP-18] Update governance parameters Q2 2023

[NIP] Notional Improvement Proposal
1

Summary

In preparation for Notional’s upcoming quarterly roll occurring Thursday, March 23rd at 8:00 PM EST, we propose to update some of the protocol’s governance parameters to increase capital efficiency across Notional’s markets. These changes will facilitate borrowing at higher rates making it more capital efficient for leveraged vault users based on the current rate environment.

AMM curves

Objective: Shift the interest rate curves upwards by increasing the anchor rates and making them flatter by increasing the scalar rates. These changes will accommodate higher interest rates and facilitate borrowing for leveraged vault users.

  • ETH: Increase the 3 Month market anchor rate from 4.5% to 5.5%;
  • DAI: Increase the 3 Month and 6 Month markets anchor rates from 3.5% to 4.5% and increase the 1 Year market anchor rate to 5.0%. Increase the 3 Month and 6 Month markets scalar rates to 50 and increase the 1 Year market scalar rate to 60;
  • USDC: Increase the 3 Month and 6 Month markets anchor rates from 3.5% to 4.5% and increase the 1 Year market anchor rate to 5.0%. Increase the 3 Month and 6 Month markets scalar rates to 50 and increase the 1 Year market scalar rate to 60;
  • WBTC: Increase the anchor rates from 1.5% to 2.0%. Increase the scalar rates from 75 to 100.

Initial proportions

Objective: Initialize the new 6 Month ETH market at a proportion that will be attractive to borrowers (3.0%). If borrowers borrow ETH above this rate it will increase the nETH organic yield as the nETH account will effectively lend at rates above the cETH rate (see: nToken Returns - Notional V2). Based on where leveraged vault borrowers borrowed in Q1, it appears likely that setting the initial interest rate at 3.0% will result in positive residuals for nETH holders.

Initialize the WBTC 6 month market in line with the current 3 month market rate.

  • ETH: Initialize the 6-month market at a proportion of 0.28 (3.0% interest rate);
  • WBTC: Initialize the 6-month market at a proportion of 0.50 (2.0% interest rate).

Leverage thresholds

Objective: Update leverage thresholds to ~6% for USDC and DAI. Update leverage thresholds to 3.5% for WBTC. If rates are above these levels, any incoming liquidity will be lent. Leverage thresholds also aim to ensure that nToken accounts never become undercollateralized by providing liquidity to individual liquidity pools at leverage ratios that are too high.

  • ETH: Unchanged
  • DAI: Set the leverage thresholds to 0.68 (3M), 0.68 (6M), 0.65 (1Y);
  • USDC: Set the leverage thresholds to 0.68 (3M), 0.68 (6M), 0.65 (1Y);
  • WBTC: Set the leverage thresholds to 0.81 (3M), 0.81 (6M).