GM everyone! Off to a fucking great start, thanks to everyone for being active, farming, helping find bugs… Here is a recap of the first few days post V2 launch, twitter thread here.
The exercise of shifting votes and incentives should be done every now and then, and later on can be given into the hands of tokenomics of GEAR or some PDI (that automatic thing Tarun keeps talking about? aka incentives change with utilization). Anyway, we are not there yet, but we already need changes, imho. I know is too early so we can’t talk of precise numbers just yet [third-party platforms are already in the process of adding Gearbox info: Nansen, DeBank, etc. - pleasу help us poke them!] but there are some numbers which are very very apparent. That’s the topic for today.
Let’s start with “why”. The idea is to keep optimal borrow rates at optimal level, so borrowers can make some %. It doesn’t mean they have to make 50% profits with a simple strategy (they can though, if they add market directional positions to a farm like here). This exercise makes less sense when there are 100 strategies, but now it’s pretty clear what & how can make money aka be usable. So we can and should fix. Everyone is free to use however they want, we are just looking at the most obvious opportunities.
Let’s start with the optimal rates. They were set up with the utilization parameters to reflect whatever currently can be sourced across the available positions and strategies.
We estimate that at optimal 80% utilization - the borrowing costs are approximately:
- 2.1% for USDC/DAI
- 3.5% for ETH/BTC
- and 1.4% for wstETH
These are the back of the envelope estimations we did for what the borrowing cost for Credit Accounts would be at 80% utilization given current Gearbox V2 parameters.
- Stables = seems good. Stables convex positions on FRAX and LUSD and even GUSD can offer jus a bit above (and more). So, all good, borrowers are happy enough. Because remember, every 0.5% difference between borrow rate and farm APY is actually a +3.5% yield at acceptable risks + GEAR soon. Bueno!
- For (W)ETH, also good. Lido gives above, Convex too, Yearn as well.
- For wtsETH, no bueno sers. On my memory, it has never been that vanilla stETH rebase yield was > the risk of providing liquidity in stETH/ETH Convex or yearn pool (the steCRV). It has always been above. But in the past few weeks, it has not been the case. And that was the highest-making $$ pool(vault) in DeFi for the last few months. If it stayed that way, wstETH would be the most obvious almost-no-liquidation-possible debt asset for it. But as things stand, it is not. wtsETH is currently too expensive by itself, it’s an unsable debt asset.
1. Cut brrrr on wstETH by 100% immediately IF this vote were to go through
So what? Well the GEAR incentives for wstETH pool are currently a waste. It’s too much of an “expensive debt asset”. It can allow for stETH shorting essentially, but the market for that does not seem to be huge right now anyway, is it? So my motion is to remove all incentives for wstETH pool (but keep the pool itself, no need to remove) and redirect the same supply incentives to the other pools.
There is more potential for borrowers to realize on stables & ETH, so let’s give them that!
Vanilla TVL without any sign of utilization is a useless expenditure. With this move, we increase the chances of utilization on product debt assets, while minimizing for TVL drops. The 7.5K wstETH [8.2K ETH] currently being there represents $13M of TVL. But that number is useless if it just gets brrr and contributes nothing. I believe some of those LPs can do switch to ETH pool, some might decide to stick around to see utilization grow, and some will leave. That is fine, the rebalances are natural!
This should prompt 1% withdrawal fee removal immediately for this pool specifically, so LPs can take decisions at the same time. Would be unethical to remove and keep the fee. Already voted for!
2.Cut brrrr on WBTC by 50% immediately IF this vote were to go through
WBTC is a different asset, and can still yield interesting short-long positions. Keep it for now.
This should prompt 1% withdrawal fee removal immediately for this pool specifically, so LPs can take decisions at the same time. Would be unethical to remove and keep the fee. Already voted for!
3. CUT CA LM for wSTETH & WBTC. Keep WETH-USDC-DAI as before.
- $60M+ was borrowed in 5 days and that’s before ninja wave 3.
- Protocols coming in, like Brahma and Mellow, to borrow more.
4. Move that expenditure to other pools + FRAX pool
- wstETH pool rewards being 0.43% GEAR supply [minus whatever has accrued to wstETH LPs so far] I would suggest to redirect the following way to other pools:
– 50% to USDC that is +0.215%
– 50% to (W)ETH that is +0.215% - WBTC pool rewards that are cut by 50% meaning 0.12% GEAR is freed up [minus whatever has accrued to wstETH LPs so far] I would suggest to redirect the following way to other pools:
– 100% to new FRAX pool [to be voted on] - CA LM for wstETH & WBTC fully going into FRAX pool
That will make FRAX pool have 0.168% incentives and could incentivize scaling AMO to $10M!
So the changes would look as follows:
