Summary
In reaction to the strong demand for Notional’s leveraged vault product, we propose a set of parameter updates to optimize the capital efficiency and UX of the protocol’s variable rate markets. More specifically, the proposed update would increase the target interest rates. Additionally, this proposal would change the shape of the variable interest rate curves such that the variable rates increase more gradually between kink1 and kink2 utilization rates.
Prime Cash Interest Rate Models
We propose increasing the kink2 interest rates for all currencies. Increasing the optimal interest rates will facilitate the variable lending experience for suppliers. We also propose increasing kink2 utilization rates by 5% for ETH and LSDs. We propose setting the kink1 utilization rates 20% below the kink2 utilization rates for all currencies. This will likely dampen the volatility in variable interest rates as utilization changes. We also propose increasing the maximum interest rate for stables from 100.5% to 150%. Fee parameters remain unchanged for all currencies.
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 | LSDs |
|---|---|---|---|
| kinkUtilization1 | 75 (75%) | 80 (80%) | 70 (70%) |
| kinkUtilization2 | 80 (80%) | 85 (85%) | 75 (75%) |
| kinkRate1 (1/256) | 5 (3.81%) | 10 (3.93%) | 2 (1.17%) |
| kinkRate2 (1/256) | 12 (9.14%) | 25 (9.81%) | 5 (2.93%) |
| 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%) |
Proposed parameters
| Parameters | ETH | Stablecoins | LSDs |
|---|---|---|---|
| kinkUtilization1 | 65 (65%) | 65 (65%) | 60 (60%) |
| kinkUtilization2 | 85 (85%) | 85 (85%) | 80 (80%) |
| kinkRate1 (1/256) | 10 (7.62%) | 17 (9.96%) | 7 (4.10%) |
| kinkRate2 (1/256) | 33 (25.14%) | 51 (29.88%) | 28 (16.41%) |
| maxRate25BPS | 255 (195%) | 225 (150%) | 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%) |