This proposal was drafted as a result of a previous discussion and made with help of @0xn1ck, @ov3rkoalafied, @alnash, and @ilgiz. I am taking the liberty to turn it into a snapshot vote. The parameters have been discussed and can be learnt about via the docs links. Please study below!
Borrow rate for pools is calculated by the formula described in docs 2. It is a standard model many lending protocols use. As a reference I consider Aave parameters (Borrow Interest Rate - Risk). In Gearbox, the pool size is much smaller, so you need to set the utilization ratio a little lower in order to reduce the risks of a liquidity crisis. See more about Pools and APY math in the docs:
At the start, it is worth limiting the amount of capital at $3M per pool. The problem that arises here is the risks of liquidity crisis if one whale takes out a large loan to his Credit Account. To avoid it I suggest limiting the max borrow amount per Credit Account to approximately $40k . This means that around 75 Credit Accounts will be created per pool if maxed out, and 280 in total over 4 pools. Seems that this is enough diversification so that the system is not so turbulent at the start.
This however still allows one to open many accounts and still achieve the same goal. To slightly mitigate this ad avoid liquidity on the LP side jumping in and out, a withdrawal fee (temporary!) can be put at 1% for a short period of a few weeks up until the pool can is either high enough or is lifted, when liquidity flowing in and out of LP would be tolerable. See below.
Other pool and credit manager parameters
Max leverage = 4
More aggressive leverage can increase the risks of the protocol at the start, while 4 looks like sufficient leverage for financial transactions.
Withdrawal fee 1%
This withdrawal fee can be considered as a backstop against system turbulence in the first weeks post-launch. This is only temporary and should be lifted in a few weeks. If you stay in the LP pool and the withdrawal fee is then not going to affect you. See more in the docs.
APY spread is 10%
Fee liquidation is 2% (going to Protocol Treasury)
NOTE: in the future, these parameters should be split and voted on separately - per Credit manager set or so. Since the system is not yet live, it would be easier right now to vote this in as a package. As such, the amount of pools is small and is not big in terms of TVL caps, to see how the protocol behaves in an isolated environment. I would think the DAO should lift up the caps as soon as and if caps are filled.
I posted this in [PRE-GIP 1], sorry didn’t realize official proposal was live. Not sure if this is a problem or not but thought it was worth mentioning.
What about Min collateral size? 0xn1ck proposed ~$1000 Min collateral, Mikael suggests “we should find balance between gas which makes liquidations profitable: 5% of total value > gas for liquidatin (400-800K per tx)” – if I did calculations correctly 800K gas at 100 gwei is ~$320.
If I’m understanding correctly, that would require Min collateral size to be ~$6400? And if anything we’d like it higher than that since gas can ofc be >100 gwei? Thoughts?
Great question. Taking inspiration from the previous discussions, it could be argued that such a small limit wouldn’t be practical as no user would want to use such a low position product given mainnet fees. The way it calculates it is I believe maxBorrowAmount / leverage smth… In this proposal, it is suggested that you can max borrow 10K x 4 (leverage) = 40K. So in total, your position can be worth 50K. You could of course add more collateral and increase the size, but you wouldn’t be able to borrow above this limit and would only be able to increase your health factor. Does this make sense or did I misunderstand?
formally speaking you right. but there are a few points:
we do not know which avg leverage will be
we do not know distribution of accounts by min debt size.
Taking into account that using Credit Account with 1k$ collateral size requires paying 100-200$ fees, I doubt that there will be a lot of such accounts… Actually, the answer on this is pretty close to Gauntlet’s analysis of Aave positions. So they estimate the size of “bad debt” - and it’s ok…
The page cached weirdly and didn’t include images (probably slow internet). Added as they are described, I assume they might have been initially seen when it was posted and then gone…
Before this proposal, we made some audits, fizzing testing and data modelling with 3pool and it seems this integration is safe.
I like Curve, and will be happy to add more there, it’s great to make a proposals to add tricrypto and sETh pools as well. However, some research is required. Definitely, let’s discuss possible security issues and then DAO could approve this integration.
I agree in general, but I feel that providing a profit for the protocol to liquidate its users is a misalignment of incentives and hope this is reduced or eliminated in the future.
I do not think that fees can be removed at all… Their absence violates the design of the system and can potentially lead to exploits. Probably liquidation fees can be reduced - but this should be looked after launch. On the other hand, I do not see this as a problem - most of the lending DeFi protocols have a liquidation fees and users are quite normal about it
