⚖️ It is the role of the unFederalReserve team to facilitate a stable lending and borrowing environment. One that encourages healthy risk-based pricing activity. The reality is DeFI platforms are constantly subject to games meant to exploit any and all economic risks. The challenge is to figure out how to correct for those risks without inadvertently doing more harm than good. Advising the community so that they can think through and adjust their personal strategies, and have enough time to begin implementation is critical. ⚖️
Timing Change and Magnitude
Over the coming weeks, we will be making adjustments to collateral factors and borrow limits for each token on ReserveLending. We intend to do this for a couple of reasons; but, namely, because it is right and proper to make sure that our stablecoin depositors feel safe, earn a higher than market return, and that other tokens do not put those suppliers at risk. We want to encourage supplying and borrowing, but not at the expense of exposing the good actors to more risk than they are already taking by taking a chance on us. We appreciate your support.
We will be lowering the collateral limits on eRSDL-backed loans, while maintaining collateral limits on stablecoins. Further, we will align the non-eRSDL and non-stablecoins to other major platforms to remove cross-platform arbitrage loop situations. We have not concluded the magnitude of the eRSDL collateral limit change, but we will constantly communicate as we work through the data, develop tactics, consider the community’s wishes and implement reasonable contingency measures to minimize the impacted parties.
Collateral Factor Rankings
As an example, $eRSDL’s collateral factor is currently 80% or at CF3, as indicated by the Collateral Factor levels below:
- CF1: 100%
- CF2: 90%
- CF3: 80%
- CF4: 70%
- CF5: 60%
- CF6: 50%
- CF7: 40%
- CF8: 30%
- CF9: 20%
- CF10: 10%
- CF11: 0%
We will review and adjust the collateral factors from time to time through the CF classification system for all the platform’s tokens and will rely on community engagement for these changes to be proposed and considered.
Please note that the selected threshold is tied to risk:
- The token price’s volatility may warrant a less risky posture,
- If the collateral factor allows lending against an assets value at too high a percentage, a borrower can effect a ‘sale’ at a lower discount than the tax payment on a true sale would imply,
- Consideration is be given to other attributes being adjusted, and
- The community response to the changes warrants reconsidering the drift downwards.
The changes will typically be made between 10 to 14 days after announced, provided community support for the change does not wane drastically. Changes may be made incrementally and from time-to-time versus being on a fixed schedule.
🔜 Also, be on the lookout for a marketing refresh to the ReserveLending platform within the next few weeks. We will work to better incentivize users to participate with and utilize the product’s features. 🏆🎁