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:

  1. Gas fees are an issue for smaller deposits due to our construction on Ethereum rails
  2. Concern from potential large suppliers around the ability of folks to use more volatile crypto (aka. the Tier 2 tokens) as loan collateral given its volatility

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.

Stay connected with unFederalReserve ⚓ https://linktr.ee/unfederalreserve

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Although the material contained in this website was prepared based on information from public and private sources that Residual Token, Inc. d/b/a unFederalReserve believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and Residual Token, Inc. expressly disclaims any liability for the accuracy and completeness of information contained in this or any article.

This article, our website, social media posts and other public forum materials are distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. The information, opinions and views contained herein have not been tailored to the objectives of any one individual, are current only as of the date hereof and may be subject to change at any time without prior notice. Residual Token, Inc. does not have any obligation to provide revised opinions in the event of changed circumstances.

All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.

Any ideas or strategies discussed herein should not be undertaken by any individual without prior consultation with a finance, tax or legal professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal objectives, needs and risk tolerance. Residual Token, Inc. expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.

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unFederalReserve

unFederalReserve

‘Credit vs Cash’ spot market fintech using blockchain protocols. Great liquidity access. Instantaneous settlement. $ersdl #DeFI #middlemarketdefi #uniswap

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