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
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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?
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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
