[Gauntlet] - Initial Parameter Recommendations for Matic Comet on Polygon
Simple Summary
If the community wishes to list this Matic Comet, Gauntlet recommends the following parameters to maximize capital efficiency:
| Asset |
Supply Cap |
Collateral Factor |
Liquidation Factor |
Liquidation Penalty |
| MaticX |
6.6M Units ($5.2M) |
78% |
82% |
10% |
| stMatic |
1.4M Units ($1.1M) |
78% |
82% |
10% |
Rationale
Largest Liquidity Sources
| Asset |
Dex Category |
Pool Assets |
TVL (mil) |
24H Volume (mil) |
MaticX (or) stMATIC TVL (mil) |
URL |
| MaticX |
Balancer |
WMATIC/MaticX |
11.2 |
4 |
5 |
link |
| MaticX |
Balancer |
WMATIC/MaticX |
0.56 |
0.32 |
0.23 |
link |
| MaticX |
Quickswap |
WMATIC/MaticX |
0.42 |
0.05 |
0.14 |
link |
| MaticX |
Total |
- |
12.18 |
4.37 |
5.37 |
- |
| stMatic |
Balancer |
WMATIC/stMATIC |
2.65 |
1.33 |
1.24 |
link |
| stMatic |
Balancer |
WMATIC/stMATIC |
0.56 |
0.02 |
0.28 |
link |
| stMatic |
Quickswap |
WMATIC/stMATIC |
0.38 |
0.008 |
0.1 |
link |
| stMatic |
Total |
- |
3.59 |
1.35 |
1.62 |
- |
Apart from the above there’s liquidity among USDC pools as well as deep liquidity in both Stader’s and Lido’s staking pools with close to 150M Matic and 124M Matic staked in each respectively. Unstaking periods for Stader labs stand at 2-3 days and 3-4 days for Lido.
Stader Labs TVL
Lido TVL
Supply Caps
MaticX
Considering the available liquidity sources, a projected 1% price slippage would necessitate approximately 6.6 million MaticX tokens. Gauntlet advises implementing a supply cap equating to this slippage i.e. 6.6 million tokens.
Using the current MaticX on USDC Comet as benchmark for user positions, the largest position makes up for the majority of MaticX supplied and is well suited to be absorbed completely on the market.
stMATIC
stMATIC has a lower liquidity profile than MaticX with 1.4M stMATIC causing a 1% Slippage, therefore, similar to MaticX we recommend a supply cap that would be half of the tokens required to create a 1% slippage, which is 1M stMatic.
If we use the current stMATIC on USDC Comet as benchmark for user positions, the largest position makes up for the majority of stMATIC supplied, however, this position is significant relative to the liquidity on DEXs. Therefore, the above recommendation of 1M stMatic is more suitable to de-risk considering the largest users on the protocol.
Should the community implement a calculated price oracle, setting the supply caps to more aggressive parameters is viable due to lower risk from market depeg event. This fosters higher utilization due to higher capital effeciency. It’s also crucial to consider the recursive strategies employed by users, which can lead to a partial transfer of DEX liquidity to lending pools (e.g., LST → BASE Borrow → Swap/Stake → LST). Therefore, maintaining the above buffers are advisable to ensure ample liquidity on DEXs.
Liquidation Factor (LF) & Liquidation Penalty (LP)
The exchange rates divergences from the market rate and must be upper-bounded by 1-LF, furthermore, it is essential to have an additional buffer to account for potential long-tail divergences. Below presented are the daily market rates and exchange rates for both stMATIC and MATICX. The daily market rates for MATICX are calculated using the ratio of MaticX/USD and WMATIC/USD price feeds, the same goes for stMATIC market rates. The exchange rate is derived from the calculated price oracle.
stMATIC Market Rate vs Exchange Rate
The maximum deviation between daily exchange rate and daily market rate for stMATIC/WMATIC is -4.8%
MATICX Market Rate vs Exchange Rate
The maximum deviation between daily exchange rate and daily market rate for MATICX/WMATIC is -6.06%
Gauntlet recommends an additional buffer to arrive at the preferred Liquidation Factor calculated as:
LF = 1 - 3 * max(ΔStMaticMarketExchangeRate, ΔMaticxMarketExchangeRate)
The above formula results in an LF of ~82% for both MaticX and stMatic. However, the Liquidation Penalties (LP) will be determined based on the available liquidity. Gauntlet advises setting an LP of 10% for both MaticX and stMatic, sufficient to absorb the maximum supply cap efficiently. These LP values are strategically chosen to provide a sufficient long-term buffer against potential deterioration in slippages.
Use of Exchange Rate Oracles
If exchange rate oracles are implemented, Gauntlet can recommend more capital efficient parameters as the asset remains insulated from market movements, although exposes it to tail-end risks. The exchange rate based risk parameters could facilitate higher caps and Liquidation Factors along with more conservative Liquidation Penalties.
IR Curves
| Asset |
Current Annual APR |
| stMatic |
4.2% |
| MaticX |
5.2% |
Gauntlet recommends the following IR parameters for this ETH Comet:
| Parameter |
Recommended Value |
| Annual Supply Interest Rate Base |
0 |
| Annual Supply Interest Rate Slope Low |
0.025 |
| Supply Kink |
0.9 |
| Annual Supply Interest Rate Slope High |
3 |
| Annual Borrow Interest Rate Base |
0.005 |
| Annual Borrow Interest Rate Slope Low |
0.035 |
| Borrow Kink |
0.9 |
| Annual Borrow Interest Rate Slope High |
3.5 |
The APRs at the kink level will provide ample room for a significant delta between the net APR (inclusive of staking rate) and the borrow rate, enabling the implementation of recursive strategies.
The chart above demonstrates that the generation of Matic Comet reserves will be positive when utilization exceeds 57%.
Considering the market equilibrium assumption of reaching 90% utilization, the following chart forecasts annualized reserves corresponding to various borrowing amounts. At $5.7M borrows, the Comets would generate annual reserves of ~$68k.
Incentive Parameters
Our COMP rewards recommendations are designed to offer appealing distribution APRs when the comets are first launched and when supply caps are highly utilized.
Gauntlet is recommending supply rewards to incentivize a more significant inflow of supply tokens into the protocol. This is important in the early stages of protocol growth since Matic supply is required before borrowers can join. Daily COMP rewards are subject to change as TVL rises and the markets evolve.
| Daily COMP Supply Rewards |
Daily COMP Borrow Rewards |
| 3 |
0 |
Here’s an update on the current COMP rewards structure in Ethereum v3 WETH (LRT):
- Daily COMP Supply Rewards: 3 COMP
- Daily COMP Borrow Rewards: 0 COMP
Assuming full usage of supply caps and current liquidation factors, the total borrowing power would be $6.3M.
Here’s a breakdown based on our assumptions:
- Borrow Usage (82%): This leads to a borrowing volume of $5.16M.
- Utilization (90%): Corresponding to a supply volume of $5.67M.
With the above utilization and the present Interest Rate curve:
- Supply APR: 2.25%
- Borrow APR: 3.62%
Given the current COMP price of $89:
- Supply Distribution APR: 1.13%
- Borrow Distribution APR: 0%
This results in the following Net APRs:
- Net Supply APR: 3.38%
- Net Borrow APR: 3.62%
The chart above illustrates the Distribution Annual Percentage Rates (APRs) across various supply levels, assuming a 90% utilization rate. It’s noteworthy that Supply APR will exceed 2% until the market’s supply reaches $2.5M. These incentive distributions are strategically designed to accelerate the new Matic Comet. The current projected net APRs are within reasonable ranges.
Next Steps
We welcome community feedback.
