Update cCOMP Parameters (Borrow Cap and Interest Rate Model)

Hi all,

Recently the v2 cCOMP market has seen high utilization, with total borrowings currently at the 90,750 COMP borrow cap. This implies that market parameters are not well optimized and some users are taking advantage of artificially compressed borrowing costs.

The borrow cap on COMP was initially set to prevent governance manipulations, but with recent votes showing strong participation (typically 500,000 COMP or more) and proposal threshold already well below the cap (25,000 COMP required to submit a proposal) without negative effects, I think that it may be safe to increase borrowing caps to allow for more utilization and greater cCOMP yields (particularly valuable considering recent removal of COMP incentives to cCOMP suppliers).

Additionally, I think adjusting the interest rate model could help improve market dynamics. Higher base rate could help improve cCOMP yield, and higher optimal rate with a lower kink point could help avoid situations where borrow rate is kept artificially low when hitting the cap.

Proposed changes:

  • Set cCOMP borrow cap to 150,000 COMP
  • Update cCOMP interest rate model:
    • Base rate: 5%
    • Kink: 50%
    • Optimal Rate: 25%
    • Max Rate: 250%

Impact in existing market conditions:

Utilization is currently at 8.6% and running up against the 90,750 COMP borrow cap, with 5% borrow rate and 0.32% supply rate. After implementing the above changes, the borrow and supply rates would be 8.3% and 0.53% respectively. If borrowing returned to the new cap (150,000 COMP, 14.3%), this would result in borrow and supply rates of 10.7% and 1.1%.

Next Steps

If anyone has input on ideal rate model or borrow cap parameters please give your input! If there’s support for adjusting the cCOMP market, I’ll push forward a proposal for the final consensus parameters.

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