Summary
In preparation for Notional’s upcoming quarterly roll occurring Monday, December 18th at 8:00 PM EST, we propose a set of parameter updates to increase capital efficiency and utilization across Notional’s V3 Arbitrum markets. More specifically, these proposed changes aim to make the protocol more efficient by increasing the target utilization rate of Notional Prime Cash markets and lowering the spread between Prime Cash borrowers and Prime Cash Lenders. Additionally, we propose a set of parameter updates aiming at lowering fixed borrow rates, making the protocol more attractive to fixed-rate borrowers and leveraged vault users.
Prime Cash Interest Rate Models
We propose increasing the target utilization rate (kinkUtilization2) for ETH, LSD, and stablecoins markets from 70% to 80%, 70% to 75%, and 80% to 85% respectively. Additionally, we propose to lower the interest rate at the target utilization rate (kinkRate2) from 4.5% to 3.8% and 5.1% to 4.7% for ETH and Stablecoin markets respectively.
These proposed changes aim to increase utilization rates, lower borrowing rates, and decrease the spread between what borrowers are paying and what lenders are earning across Prime Cash markets. The changes would make Notional Prime Cash markets more efficient and more competitive.
The proposed Prime Cash interest rate models can be visualized here. We present the breakdown of the proposed parameter changes for Prime Cash markets in the tables below:
Current parameters
| Parameters | ETH | Stablecoins | Liquid Staking Derivatives |
|---|---|---|---|
| kinkUtilization1 | 15 (15%) | 10 (10%) | 50 (50%) |
| kinkUtilization2 | 70 (70%) | 80 (80%) | 70 (70%) |
| kinkRate1 (1/256) | 2 (1.52%) | 5(1.96%) | 1 (0.59%) |
| kinkRate2 (1/256) | 6 (4.57%) | 13 (5.10% ) | 2 (1.17%) |
| maxRate25BPS | 255 (195%) | 192 (100.5%) | 225 (195%) |
| minFeeRate5BPS | 10 (0.5%) | 10 (0.5%) | 10 (0.5%) |
| maxFeeRate25BPS | 160 (40%) | 160 (40%) | 160 (40%) |
| feeRatePercent | 20 (20%) | 20 (20%) | 20 (20%) |
Proposed parameters
| Parameters | ETH | Stablecoins | Liquid Staking Derivatives |
|---|---|---|---|
| kinkUtilization1 | 15 (15%) | 10 (10%) | 50 (50%) |
| kinkUtilization2 | 80 (80%) | 85 (85%) | 75 (75%) |
| kinkRate1 (1/256) | 2 (1.52%) | 6 (2.36%) | 1 (0.59%) |
| kinkRate2 (1/256) | 5 (3.81%) | 12 (4.71%) | 2 (1.17%) |
| maxRate25BPS | 255 (195%) | 192 (100.50%) | 225 (150%) |
| minFeeRate5BPS | 10 (0.50%) | 10 (0.50%) | 10 (0.50%) |
| maxFeeRate25BPS | 160 (40%) | 160 (40%) | 160 (40%) |
| feeRatePercent | 20 (20%) | 20 (20%) | 20 (20%) |
fCash Interest Rate Models
We propose a set of parameters that would lower the initial fCash rates in the 6M markets in order to make them more attractive to borrowers. This change is especially important in conjunction with the upcoming launch of leveraged vaults for non-U.S users.
In order to enable users to borrow at lower rates in the 6M markets we propose setting the initial utilization rate for 6M markets at 40%. Additionally, we propose setting the interest rates at optimal utilization (kinkRate2) lower than they were set previously in order to make the 6M interest rate models more attractive to borrowers. We also propose setting leverage thresholds lower for 6M markets such that the nToken will lend incoming liquidity if the market utilization is ever above the leverage threshold.
Regarding 3M markets, we propose a set of parameters allowing users to trade a wider range of interest rates comparatively to 6M markets. This will simplify the quarterly roll process by which 6M markets convert to 3M markets.
Otherwise, we propose other small adjustments such as:
- Lowering the Kink2Rate for ETH 3M from 6% to 5%;
- Increasing kinkRate1 for all 3M markets .
The proposed fCash interest rate models can be visualized here.
3 Month fCash markets
In the tables below we present the breakdown of the proposed parameter changes for 3M fCash markets:
Current parameters (3M fCash Markets)
| Parameters | ETH | Stablecoins | Liquid Staking Derivatives |
|---|---|---|---|
| kinkUtilization1 | 15 (15%) | 15 (15%) | 15 (15%) |
| kinkUtilization2 | 70 (70%) | 80 (80%) | 65 (65%) |
| kinkRate1 (1/256) | 17 (1.99%) | 17 (1.99%) | 5 (0.59%) |
| kinkRate2 (1/256) | 51 (5.98%) | 51 (5.98%) | 15 (1.76%) |
| maxRate25BPS | 120 (30%) | 120 (30%) | 120 (30%) |
| minFeeRate5BPS | 3 (0.15%) | 3 (0.15%) | 2 (0.10%) |
| maxFeeRate25BPS | 8 (2.00%) | 8 (2.00%) | 8 (2.00%) |
| feeRatePercent | 8 (8%) | 8 (8%) | 8 (8%) |
| Initial proportion | 50 (50%) | 50 (50%) | 50 (50%) |
| Deposit share | 55 (55%) | 55 (55%) | 50 (50%) |
| Leverage threshold | 70 (70%) | 80 (80%) | 65 (65%) |
Proposed parameters (3M fCash Markets)
| Parameters | ETH | Stablecoins | Liquid Staking Derivatives |
|---|---|---|---|
| kinkUtilization1 | 15 (15%) | 15 (15%) | 25 (25%) |
| kinkUtilization2 | 75 (75%) | 80 (80%) | 75 (75%) |
| kinkRate1 (1/256) | 27 (3.16%) | 30 (3.52%) | 6 (0.70%) |
| kinkRate2 (1/256) | 43 (5.04%) | 51 (5.98%) | 17 (1.99%) |
| maxRate25BPS | 120 (30%) | 120 (30.00%) | 120 (30.00%) |
| minFeeRate5BPS | 3 (0.15%) | 3 (0.15%) | 2 (0.10%) |
| maxFeeRate25BPS | 8 (2.00%) | 8 (2.00%) | 8 (2.00%) |
| feeRatePercent | 8 (8%) | 8 (8.00%) | 8 (8.00%) |
| Initial proportion | 50.00% | 50.00% | 50.00% |
| Deposit share | 55.00% | 55.00% | 50.00% |
| Leverage threshold | 75.00% | 80.00% | 75.00% |
6 Month fCash markets
In the tables below we present the breakdown of the proposed parameter changes for 6M fCash markets:
Current parameters (6M fCash Markets)
| Parameters | ETH | Stablecoins | Liquid Staking Derivatives |
|---|---|---|---|
| kinkUtilization1 | 15 (15%) | 15 (15%) | 15 (15%) |
| kinkUtilization2 | 70 (70%) | 80 (80%) | 65 (65%) |
| kinkRate1 (1/256) | 20 (1.95%) | 20 (1.95%) | 6 (0.59%) |
| kinkRate2 (1/256) | 61 (5.96%) | 61 (5.96%) | 18 (1.76%) |
| maxRate25BPS | 100 (25%) | 100 (25%) | 100 (25%) |
| minFeeRate5BPS | 3 (0.15%) | 3 (0.15%) | 2 (0.10%) |
| maxFeeRate25BPS | 8 (2.00%) | 8 (2.00%) | 8 (2.00%) |
| feeRatePercent | 8 (8%) | 8 (8%) | 8 (8%) |
| Initial proportion | 50 (50%) | 50 (50%) | 50 (50%) |
| Deposit share | 45 (45%) | 45 (45%) | 50 (50%) |
| Leverage threshold | 70 (70%) | 80 (80%) | 65 (65%) |
Proposed parameters (6M fCash Markets)
| Parameters | ETH | Stablecoins | Liquid Staking Derivatives |
|---|---|---|---|
| kinkUtilization1 | 15 (15%) | 40 (40%) | 25 (25%) |
| kinkUtilization2 | 75 (75%) | 80 (80%) | 75 (75%) |
| kinkRate1 (1/256) | 10 (0.98%) | 25 (2.44%) | 4 (0.39%) |
| kinkRate2 (1/256) | 41 (4.00%) | 51 (4.98%) | 12 (1.17%) |
| maxRate25BPS | 100 (25.00%) | 100 (25.00%) | 100 (25.00%) |
| minFeeRate5BPS | 3 (0.15%) | 3 (0.15%) | 2 (0.10%) |
| maxFeeRate25BPS | 8 (2.00%) | 8 (2.00%) | 8 (2.00%) |
| feeRatePercent | 8 (8.00%) | 8 (8.00%) | 8 (8.00%) |
| Initial proportion | 40.00% | 40.00% | 40.00% |
| Deposit share | 45.00% | 45.00% | 50.00% |
| Leverage threshold | 60.00% | 60.00% | 60.00% |