Optimizing ARB Market Parameters

[ParibusTeam]

Proposal for Optimizing ARB Market Parameters on Paribus

Dear Paribus Governance Forum,

After a meticulous analysis of market dynamics and outcomes, the Paribus team is excited to propose a groundbreaking initiative to set new market parameters for the ARB Market on our platform. Our goal is to differentiate ourselves from competitors and create a more dynamic and responsive ecosystem.

Challenges and Considerations:

Converging supply and borrow rates is a complex task, given the interdependence of supply, borrow, total deposits, total borrow, and total reserves. While maintaining total deposits and reserves as constants, we propose a strategic adjustment by initially lowering the borrow Annual Percentage Yield (APY) to stimulate borrowing activity. Although this might lead to a temporary reduction in earning APY, the subsequent increase in borrowing activity is expected to normalize the rates over time.

Current ARB Parameters:

New ARB Parameters:

New Utilization Rate:

Below are the proposed utilization rate parameters for ARB, showcasing the corresponding Borrow Rate (Annual) and Supply Rate (Annual):

• Utilization Rate: 23% - Borrow Rate: 1.45%, Supply Rate: 0.26%
• Utilization Rate: 24% - Borrow Rate: 1.51%, Supply Rate: 0.29%
• Utilization Rate: 25% - Borrow Rate: 1.57%, Supply Rate: 0.31%
• Utilization Rate: 26% - Borrow Rate: 1.64%, Supply Rate: 0.34%
• …
• Utilization Rate: 40% - Borrow Rate: 2.53%, Supply Rate: 0.80%
• Utilization Rate: 41% - Borrow Rate: 2.86%, Supply Rate: 0.93%
• Utilization Rate: 42% - Borrow Rate: 3.18%, Supply Rate: 1.06%
• Utilization Rate: 43% - Borrow Rate: 3.51%, Supply Rate: 1.19%
• …
• Utilization Rate: 60% - Borrow Rate: 9.24%, Supply Rate: 4.33%
• Utilization Rate: 61% - Borrow Rate: 9.59%, Supply Rate: 4.57%
• Utilization Rate: 62% - Borrow Rate: 9.93%, Supply Rate: 4.81%
• Utilization Rate: 63% - Borrow Rate: 10.28%, Supply Rate: 5.06%
• …
• Utilization Rate: 95% - Borrow Rate: 22.05%, Supply Rate: 16.35%
• Utilization Rate: 96% - Borrow Rate: 22.44%, Supply Rate: 16.82%
• Utilization Rate: 97% - Borrow Rate: 22.83%, Supply Rate: 17.30%
• Utilization Rate: 98% - Borrow Rate: 23.22%, Supply Rate: 17.78%
• Utilization Rate: 99% - Borrow Rate: 23.61%, Supply Rate: 18.28%
• Utilization Rate: 100% - Borrow Rate: 24.00%, Supply Rate: 18.78%

Conclusion:

By strategically adjusting the borrow APY, we aim to enhance the overall competitiveness and attractiveness of the Paribus ARB Market. This proposal seeks to strike a balance between enticing borrowing activity, maintaining competitive rates, and fostering a sustainable and thriving ecosystem.

We welcome feedback and discussion from the Paribus community to collectively shape the future of our platform.

Sincerely

Paribus Team

[Loukey]

This makes sense, without adoption and utilization the APY won’t mean anything in the long run; striking the balance is the goal and I think this aims to achieve it.

[pbxenthusiast]

We need borrowing activity to be raised on higher level and I think that this will actually help. As far as I’m concerned, I would vote yes on this.

[Kamh888]

Having read up on it, and the feedback from other members I’d agree with this. It gives a good balance. As @pbxenthusiast mentioned, we need both borrowing and lending activity increased. This would get a yes from me.

[bmodali]

I am a bit confused. When the platform utilization is low i.e. < 30/40 percent, should the supply rate not be higher to increase deposits to the protocol?

Without increased deposits through attracting yields for depositors, how will the protocol see increased utilization?

[ParibusTeam]

Your point is valid.
At low utilization, there’s a greater incentive to borrow due to lower costs. As utilization surpasses 50%-60%, it becomes increasingly enticing for liquidity providers. Cheap rates theoretically boost borrowing, raising utilization and incentivizing more liquidity providers. The market should self-balance over time.

Additionally, every borrower contributes liquidity as collateral, and by increasing borrowing, there is a subsequent influx of more liquidity providers. This dynamic helps create a self-reinforcing cycle in the market.

As a protocol, it’s crucial to note that a significant portion of revenue comes from borrowers repaying loans and liquidations. Essentially, increased borrowing activity is what generates revenue for the protocol and benefits DAO members long term.

Does this make sense, or do you suggest increasing borrowing rates and depositor rates during periods of low utilization?

[bmodali]

It makes total sense now. Thanks for the detailed explanation.

My mind skipped the fact that borrowers have to post colleteral to the protocol to be able to borrow and that the colleteral itself provides liquidity to the protocol.

You get my vote on this proposal!

[dnzdlklc]

Can you provide actual parameter changes to ARB market. I cannot see the new params for utilisation rate, multiplierPerBlock etc. It would be good to have current params and new params side by side for an easy comparison.