ReserveLending Announcement: Utilization Hypothesis

Effective this weekend, the ability to borrow USDC, USDT, or DAI and, separately, to supply eRSDL on ReserveLending will be temporarily suspended. This change came as a result of our periodic review of the platform’s key performance metrics (KPIs).

As of the last week in April 2022, utilization of stablecoins on ReserveLending stood at around 72%, and total TVL has remained between $4mn and $5mn for a number of months. Utilization is a measure of total borrows (USD) / total supply (USD). By comparison, industry data released by AAVE shows that utilization on its rails runs between 25% and 40% more than half of the time. This utilization occurs even though supply APYs are significantly lower on its platform relative to ours.

Based on discussions with industry experts and our own analytics, the two main impediments to RL supply growth have been as follows:

The gas fee issue is not something we can immediately address. By our calculations, current gas fees can ‘cost’ as much as 3% to 5% in yield for deposits under $15,000, and as much as 1% on deposits up to $25,000. Therefore, the population of potential suppliers is likely thinking in terms of $50,000 or $100,000 deposits where the gas fee cost relative to the yield is de minimus. However, the second risk to depositors persists, because if they’ve accumulated that much wealth, they are likely familiar with the risks of supplying stablecoins on platform that allows volatile tokens to be used as collateral.

We are hypothesizing that by suspending stablecoin borrows and removing the volatile collateral risk to suppliers, we should see an increase in deposits without much degradation in offered yields.

Borrowers will be able to pay back their loans or remove their existing supply as normal, but new borrowing will be prohibited. Our expectation is that when we have observed utilization around the 25% mark for a prolonged period of time, that governors on borrow limits could be enacted to allow for a return of that functionality.

Thank you for your time and attention to this announcement and make your personal financial choices accordingly.

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