[Gauntlet] Arbitrum USDC - Reward Recommendations

Proposals
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Simple Summary

Gauntlet recommends decreasing the daily COMP supply rewards from 34.73 to 10 (~$542k annual savings) due to low utilization and the upcoming launch of a native USDC comet on Arbitrum.

Analysis

As mentioned in our Arbitrum USDC weekly market update, the Arbitrum USDC market has continued to have low USDC utilization. Below is an analysis of the comet over the past week:

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The minimum USDC utilization was 20.2%, and the maximum was 36.3%.

The minimum USDC reserve growth was -47.3%, and the maximum was -17.3%. The average USDC reserve growth was -31.8%.

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The comet lost $551 USDC reserves while distributing $16.30k COMP rewards for a weekly Net Protocol Profit of -$16.85k.

Recommendations

Gauntlet recommends decreasing the daily COMP supply rewards from 34.73 to 10 (~$542k annual savings). Compound Labs is working on launching a native USDC comet on Arbitrum, to migrate liquidity from this comet to be deprecated to the new comet.

Currently, the Earn Distribution is 5.27%, with $13.81M USDC supply and 36.91% utilization. The USDC supply is overly incentivized, losing $760k annual COMP rewards. Given the current $13.81M USDC supply, decreasing the daily COMP supply rewards to 10 will dilute the Earn Distribution to 1.52%, resulting in a Net Earn APR of 2.71%.

Next Steps

  • Target on-chain vote 8/7/23.
2 Likes
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Thanks Gauntlet for the updates on the incentive optimization. It’s noteworthy that the significant growth in Arbitrum USDC is largely fueled by the $ARB supply.

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Comparing the LTV between AAVE and Comet:

LTV WETH WBTC ARB
AAVE 82.5% 73.0% 50.0%
Comet 78.0% 70.0% 55.0%

Presently, Comet offers much lower borrowing interest rates than AAVE, which should create substantial demand in the lending market, provided the LTV becomes more competitive. Therefore, should we also consider increasing the LTV for $WETH and $WBTC, to make the proposition more enticing for potential users?

2 Likes
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Thanks for the question @Michigan_Blockchain. Our analysis indicates we can increase the Liquidation Factors when the new comet launches. However, since this comet will be deprecated, we do not recommend increasing them at this time.

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The proposal has passed and been executed. We thank the community for their participation.