[Gauntlet] Market Update: Ethereum USDC (7/21/23)

[Gauntlet]

Gauntlet would like to inform the community of recent growth in the Ethereum USDC comet.

Simple Summary

• USDC supplies and borrows are both at all-time highs for the comet.
• USDC supply has increased from $160M to $387M (+141%) in the past month.
• USDC borrows have increased from $156M to $363M (+132%) in the past month.
• The comet lost ~$60k USDC reserves over the past month, which is minimal compared to ~$1M/month in COMP rewards the comet distributes to incentivize growth.
• The borrow kink in the IR Curve has been re-established at 95% (implied 20% reserve factor), and as a result, the protocol will not experience negative reserve growth at high utilizations.

Analysis

USDC Supply and Borrows for Compound Ethereum v3 USDC are at all-time highs currently, with supply at $387M and borrows at $363M. Below are time series charts of the collateral, USDC borrows, and USDC supply over the past month.

In the past month, USDC supply has increased from $160M to $387M (+141%), and USDC borrows have increased from $156M to $363M (+132%).

Time Series of USDC Reserve Growth

As seen above, in the past month the comet has lost ~$60k USDC reserves, since reserve growth under the previous IR curve was negative during periods of high utilization. However, the protocol experienced tremendous TVL growth, and the $60k reserve losses are minimal compared to ~$1M/month in COMP rewards the comet distributes to incentivize growth.

The new IR curve reintroduces the borrow kink at 95% (implied 20% reserve factor), ensures reserve growth will be positive even at high utilizations, and is on pace to earn greater reserves with higher TVL.

[Michigan_Blockchain]

Thanks Gauntlet for sharing the recent update on the USDC market of Comet. The maximum reserve loss over the past month has reached almost $160k. We are interested in hearing more insights into how the reserves evolve in relation to different realizations of the IR curve.

[Gauntlet]

Thanks for the question, @Michigan_Blockchain .

Above is a chart of utilization vs implied reserve factor at various utilization levels. At 95% utilization, the implied reserve factor is 18%.

Above is a chart of utilization vs annual USDC reserves (USD) at various utilization levels, holding the current $361M borrows fixed. At 95% utilization, the annual USDC reserves are $2.75M.

[Michigan_Blockchain]

Thanks for answering this. It’s primarily the extremely high utilization rate that’s leading to the shrinking of reserves.