[Gauntlet] Arbitrum v3 USDT Initial Asset Listing Recommendations
Simple Summary
Gauntlet is excited for the community to expand Compound III into USDT. We recommend the following initial parameter recommendations for the Arbitrum v3 USDT comet.
Risk Parameters
| Asset | Collateral Factor | Liquidation Factor | Liquidation Penalty | Supply Cap |
|---|---|---|---|---|
| WETH | 78% | 85% | 5% | 7,500 ($26M) |
| WBTC | 70% | 80% | 10% | 250 ($16M) |
| wstETH | 70% | 80% | 10% | 1,500 ($6M) |
| ARB | 70% | 80% | 10% | 7,500,000 ($14.9M) |
| GMX | 60% | 70% | 20% | 100,000 ($5.8M) |
Gauntlet recommends against listing COMP based on Arbitrum liquidity on decentralized exchanges (DEX). Presently, exchanging 1,000 COMP (valued at $86k) for USDT results in a 89% slippage. Gauntlet provided parameter recommendations for assets listed on Arbitrum v3’s USDC Comet and included wstETH, as requested in the initial proposal. We excluded USDC from our initial recommendation due to uncertainties about the market value of incorporating a fiat-backed stablecoin into the USDT Comet market. Gauntlet will provide a recommendation if the community wants to move forward with adding USDC to the Comet as collateral.
Storefront Price Factor: 60%
Gauntlet recommends keeping the Store Front Price Factor at the same value as the Arbitrum v3 USDC Comet.
Target Reserves: 20,000,000
After Gauntlet’s forum post analyzing Target Reserves, Gauntlet recommends increasing the Target Reserves for this market based on historical reserve growth and our recent recommendation to increase Ethereum USDC Comet’s Target Reserves.
IR Curve Parameters
Gauntlet recommends the following IR parameters for USDT Comets:
| IR Parameter | Value |
|---|---|
| borrow per year interest rate base | 0.015 |
| borrow per year interest rate slope low | 0.061 |
| borrow kink | 0.90 |
| borrow per year interest rate slope high | 3.2 |
| supply per year interest rate base | 0 |
| supply per year interest rate slope low | 0.059 |
| supply kink | 0.90 |
| supply per year interest rate slope high | 2.9 |
The chart above demonstrates that the generation of Comet USDT reserves will be positive when utilization exceeds 72%.
Considering the market equilibrium assumption of reaching 90% utilization, the following chart forecasts annualized reserves corresponding to various borrowing amounts. At $35M borrowed, the Comet would generate annual reserves of $343k.
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 higher 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 USDT supply are required before borrowers can join. Daily COMP rewards are subject to change as TVL rises and the markets evolve.
USDT Comet Incentives
| Daily COMP Supply Rewards | Daily COMP Borrow Rewards |
|---|---|
| 12 | 10 |
Here’s an update on the current COMP rewards structure in Arbitrum v3 USDT:
- Daily COMP Supply Rewards: 12 COMP
- Daily COMP Borrow Rewards: 10 COMP
Assuming full usage of supply caps and current liquidation factors, the total borrowing power would be $55.1M.
Here’s a breakdown based on our assumptions:
- Borrow Usage (60%): This leads to a borrowing volume of $33M.
- Utilization (90%): Corresponding to a supply volume of $36M.
With the above utilization and the present Interest Rate curve:
- Supply APR: 5.31%
- Borrow APR: 6.99%
Given the current COMP price of $89:
- Supply Distribution APR: 1.05%
- Borrow Distribution APR: .97%
This results in the following Net APRs:
- Net Supply APR: 6.36%
- Net Borrow APR: 6.02%
The chart above illustrates the Distribution Annual Percentage Rates (APRs) across various supply levels, assuming a 90% utilization rate. It’s noteworthy that APRs exceeding 2% will persist until the market’s supply reaches $22M. These incentive distributions are strategically designed to accelerate the USDT Comet. The current projected net APRs are within reasonable ranges.
Next Steps
We welcome community feedback.