New Stablecoin APY Methodology and Impact on Liquidity For ReserveLending® Participants
Current cryptocurrency and digital asset market conditions have resulted in the recent market participant tendency to hold stablecoins. This trend started about two months ago in conjunction with the beginnings of the broad market pullback. One of the unintended consequences for ReserveLending® has been limited stablecoin liquidity.
A period of time has passed without the market self-correcting, and ample liquidity remains a point of concern. Within that time we have tested a number of scenarios to try and increase liquidity, including: adjusting borrow limits, implementing new APY models, and concentrating marketing efforts around increasing stablecoin supply.
After careful consideration and analysis, implementing a new APY model for stablecoins was selected. However, we reserve the right to make other changes as necessary to create favorable peer-to-peer lending/borrowing conditions.
One of the considerations when selecting a model was that it has to have been in production for an extended period of time. An APY model that has been in circulation satisfies the need to be cautious of any economic security impacts. Another consideration is the newness of the ReserveLending® platform and its limited user base.
The current APY model will be replaced with the following model for USDC, DAI, and USDT only: https://docs.cream.finance/lending/interest-rate-model
The new model calls for the following inputs when calculating an APY:
- Base Rate for borrowing
- A Multiplier based on utilization
- A JumpMultiplier when utilization exceeds a “Kink” amount
- A Kink amount or utilization rate above which triggers the JumpMultiplier
For this model, please note in the diagram below that the borrowing rate raises dramatically when the supply reaches utilization of 85%. This diagram is an example of the JumpRateV2 output and not indicative of actual ReserveLending® rates.
We continuously evaluate and monitor market conditions on a qualitative and quantitative basis. Time-to-time adjustments may be made going forward, as needed, to models and settings as situations arise.