Summary
Gauntlet recommends the IR Curve Adjustments to BASE WETH Comet:
| Parameter | Current Value | Recommended Value |
|---|---|---|
| Annual Supply Interest Rate Base | 0 | 0 |
| Annual Supply Interest Rate Slope Low | .015 | 0.0115 |
| Supply Kink | .9 | .85 |
| Annual Supply Interest Rate Slope High | .9 | .8 |
| Annual Borrow Interest Rate Base | .005 | .006 |
| Annual Borrow Interest Rate Slope Low | .0155 | 0.0125 |
| Borrow Kink | .9 | .85 |
| Annual Borrow Interest Rate Slope High | 1 | .9 |
Gauntlet recommends the Rewards Adjustment to BASE WETH Comet:
| Comets | Daily COMP Supply Rewards (Tokens) | Recommended Daily COMP Supply Rewards (Tokens) | Daily COMP Borrow Rewards (Tokens) | Recommended Daily COMP Borrow Rewards (Tokens) |
|---|---|---|---|---|
| Compound v3 WETH (BASE) | 10 | 6 | 2 | 2 |
Analysis
Ethereum WETH Comet
Gauntlet provided recommendations to adjust the rewards via the [Gauntlet] IO Recommendations for WETH Comets on BASE and ETH Mainnet forum post on April 23, 2024. Gauntlet recommended adjusting the rewards to include incentives for borrowing WETH to encourage higher utilization of the WETH Comets. As shown in the charts below, we can see that the markets experienced an uptick in utilization following the execution of the proposal:
The incentivization of borrowing WETH Comet on Mainnet had an interesting impact: it significantly increased the amount of wstETH and rETH collateral within the Comet. The combined collateral of wstETH and rETH rose from $2 million before Proposal 224 to $23.5 million.
The WETH Comet saw an increase in Borrow Balance, but it was the decrease in supply balances that actually drove higher utilization within the Comet. This decrease was primarily caused by user 0xdde0d6e90, who migrated their funds from the WETH Comet to earn yield through sources outside of lending protocols. Gauntlet did not adjust or reduce Daily Comp Supply rewards within proposal 224 so this exit does not look to be motivated by recent parameter changes to the Comet.
Gauntlet does not recommend any further IO or interest rate adjustments for the WETH Comet at this time. However, we have pending interest rate curve adjustments for the WETH Comet once LRTs rsETH and weETH are added. The addition of LRTs and osETH is expected to generate more borrowing demand for WETH, at which point Gauntlet will review the WETH Comet rewards.
BASE WETH Comet
The utilization of the BASE WETH Comet experienced a smaller increase compared to the Mainnet WETH Comet. Gauntlet will make further recommendations to improve utilization, but we strongly recommend that the community add wstETH to the BASE market as proposed in this forum post. There are indications that LRTs will be increasing within the BASE chain, with weETH and rsETH supply ramping up. Gauntlet will monitor the token supply and liquidity of these LRTs within BASE and will provide a listing recommendation to the community when conditions improve.
The decrease in Daily COMP Supply Rewards from 10 tokens to 6 will lower the distribution APR to approximately 1%, encouraging the WETH Comet to move towards equilibrium at the kink. After the execution of Proposal 224, supply users demonstrated inelasticity to the 33% reduction in COMP rewards, resulting in only minor changes in WETH supply. While this recommendation may cause an outflow of supply from the Comet, it will help reduce the excess supply that is being sustained by daily rewards.
Current BASE WETH Comet IR Curve
The recommended interest rate curves would generate positive reserve growth at 45% utilization, compared to 60% with the current interest parameters. The chart above illustrates the recommended reserve factor relative to utilization in relation to the new interest rate curves. The chart below compares the current reserve factor with the optimized reserve factor.
Lowering the utilization threshold for positive reserve generation, the new interest rate parameters would encourage the market to increase utilization due to the shift in interest rate curves. As shown in the chart below, the retroactive performance of the optimized interest rate curves would have increased utilization by 20-30%.
| Supply APR at Kink | Borrow APR at Kink | |
|---|---|---|
| Current | 1.35% | 1.895% |
| Optimized | 0.9775% | 1.6625% |
Next Steps
We welcome community feedback. We will submit an on-chain proposal next week.