Leverage revision

The first step to putting the gears in motion? Pulling the lever

Gm, TLDR; we only have degens who want more leverage, blz give 7X

Longer version:

We have had people degening on gearbox and using leverage to earn leveraged rewards, interests, farming activities yada yada but we are still on a strict 4X. While leverage externally has multiple important use cases, internally too it takes care of multiple dynamics

  1. Revenue for DAO: borrowed capital = spread earnings. Higher leverage means more borrow capital means more revenue means more money for DAO to leverage trade later, jk… riight?

  2. APY auto adjustment: We have since the beginning had our TVL at only about 35-40% utilisation levels. This has resulted in supremely low APYs for the TVL as it’s always been at caps decided by the DAO. Additional borrowing through increased leverage will enable higher borrows and automatically improved TVL dynamics

Now while the above has merits, a user fit is necessary, below is the data till before the box in the sky announcement at which too many accounts got opened hoping for a drop

Leverage Value Total Transactions Share of value Share of transactions
3.5-4 2953631 234 76% 54%
3-3.5 573260 70 15% 16%
2 to 3 348051 86 9% 20%
>2 19075 45 0% 10%
3894017 435

Trades at the highest leverage level accounted for 76% of the value and 54% of the transaction

The 3-4X lev range made up almost 91% of the volume, 78% of this happened at the highest 4X leverage level

Clearly our degens are ready to degen way more

Risks

Increased leverage will mea increased liquidations, which can lead to liquidators maybe missing out and the protocol being below equilibrium.

Since we don’t have data on the above, we should increase leverage in phases, the next one being 7X

As per above stats, number of contracts take a tumble after 6X before the volume again picks up massively at 10X

Leverage Volume
2 12.5
3 29
4 39
5 36
6 32
7 15
8 19
9 24
10 133
339.5

Table for the blind homies

A 7X level will enable us to gauge the risk appetite of our users, till 6X we have users who are carefully taking up positions, evaluating risk. The people in the 6X-7X range will be the ones more likely to move to 10X

Basis the results of this data and the liquidators performance, we can determine when and whether to kick off Phase 2 and take the leverage up to 10X

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I second this and great research!

My personal interest is leveraged yield farming with stable coins and delta neutral strategies. Would be very beneficial to have larger leverage with long/short pairs like stETH/WETH or icETH/WETH or yvUSDC/USDC.

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Btw. the maximum initial leverage is limited by the LT factors in the following way Hf=LT*L/(L-1) if I’m correct.

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If it’s a way to attract more degens, I’m all for it. More degens, more liquidity.

that’s cool higher leverage higher rewards but the risk that higher leverage take to the system is affordable?

There is no problem with the idea, it is worth affirming, the 10X risk is very tempting