Proposal: reduce APY of unlocked supplies

The last change in vires improved the structure of incentives by increasing the APY of locked supplies. However, the APY of unlocked supplies is still too high and quite close to locked supplies ones. So here we have a situation where locking supplies benefits are not really much. compared to unlocked ones. Funds are locked but rate difference with unlocked supply is too small for justify to lock. After all unlocked supplies in current liquidity situation are more interested in going out asap than in gaining high interest rates.

Actually the only difference between unlocked and locked supplies total APY is the vires APY. If we increase the proportion of borrowing interests that go to generate vires APY for locked supplies, we may increase this difference. However, this will only move more rewards from unlocked to locked suppliers. And nothing else. It does not help with liquidity problem nor any other stress in the ecosystem. And there are much more interesting ways to increase the APY difference with additional benefits. So in the proposal the benefit for people that commit to the protocol and lock funds is not immediate rewards, but as helps in the long term stability, it is still a big benefit for them.

My proposal here is to make vires to work closely with neutrino, and reduce the unlocked supplies APY significantly (for example, by the neutrino BR factor when BR < 1) , and use the undistributed reward to burn USDN:

  • for USDN unlocked supplies, the undistributed rewards is directly burn. No swap USDN->WAVES, but just burn USDN, in order to increase BR.
  • for the other unlocked supplies, use it to sell on market (or swap in swop, puzzle, etc) in exchange of USDN, and then burn these USDN. This will create a buy pressure on USDN that will help with depeg, and also increase BR.

Notice that this mechanism also maintains intact the incentive to provide liquidity, as the locked supplies conserve high APY. In addition, as BR increases, instead of increasing unlocked supplies APY, we can increase the vires APY for locked supplies. In this way a bigger APY difference between locked and unlocked supplies is conserved even when BR > 1.

A possible approach could be:

  • If BR < 0.5, the current unlocked supplies APY (lets call it nAPY) is adjusted by BR, that is, APY = nAPY * BR. Remaining goes to burn USDN.
  • If 0.5 < BR < 1, APY = nAPY * 0.5, additional vAPY = nAPY * (BR - 0.5). Remaining goes to burn USDN.
  • If BR > 1, APY = additional vAPY = nAPY * 0.5.

With the current neutrino BR and unlocked supplies, around 1.16M USDN can be burned daily:

unlocked USDN supplies = 667.1M
unlocked USDT supplies = 120M
unlocked USDC supplies = 224.6M

total USDN daily interests paid to unlocked supplies = 667.1M * 0.5873 / 365 = 1.07M
total USDT daily interests paid to unlocked supplies = 120M * 0.4 / 365 = 0.13M
total USDC daily interest paid to unlocked supplies = 224.6M * 0.4 / 365 = 0.25M

Total = 1.45M If (1- BR) = 0.8 goes to burn, then 1.16M USDN daily can be burned with this mechanism.

The only limitation right now is the lack of liquidity of USDC and USDT. Part of it are paid to suppliers, and the other part does not exist. So there is no USDC/USDT available for buying USDN. Under this situation, it is better if only the USDN unlocked supplies part is used to be burned (still they are 800K daily), and the USDC/USDT part just for reducing the borrowing rate, that is, decrease debt accumulation, until utilization of these assets shrink enough.

Notice that in this case, the daily interest rate accumulation of USDT/USDC borrowings is reduced substantially, by 380K. Also, by avoiding for now the complications of buying USDN in market, the initial stage of the proposal is much simpler to implement. We then have the following initial setup:

  • burn the unaccrued USDN interests (right now, 800K/day)
  • use unaccrued USDT/USTC interests for reducing borrowing payments (right now, by 380K/day)

Update I was replied that most USDN supplies are unborrowable, and only 27M are borrowable. So the current amount of daily burning is much smaller than what I said. This is right. I computed wrong above. However, this unborrowable supply belongs to Sasha, so this can change after the proposal. By switching to borrowable supply, even with the APY correction will get more interest than unborrowable. And this supply can be progressively being switched to borrowable as USDN depeg pressure decrease. Also, the switch to borrowed supply shouldn’t have much effect right now, as USDN borrowing interest rate is high. If any potential issue with this, the USDN borrowing max rate can even be increased further (for example, to avoid USDN shorters)

Update 2 The APY correction must be applied not only to unlocked supplies, but also to LP tokens. Same concept. And for avoiding unlocked suppliers to escape rate reduction by exporting to LP tokens.

2 Likes

Can’t the same be achieved by simply reducing token APY and increasing vires distribution?

I mentioned that in the second paragraph, and I explain why is not the best approach. The desired effect is not only to increase APY difference. It is also to help in liquidity problem.

total USDN daily interests paid to unlocked supplies = 667.1M * 0.5873 / 365 = 1.07M

  1. Only 27M generate the interest, all other is non-borrowable collateral, so it’s more like 43K/day

total USDT daily interests paid to unlocked supplies = 120M * 0.4 / 365 = 0.13M
total USDC daily interest paid to unlocked supplies = 224.6M * 0.4 / 365 = 0.25M

  1. the accrued interest from USDT/C comes in form of LP since it’s hard to withdraw

Altogether, it’s still lenders getting $_LP and Sasha servicing the debt.

  1. You are right, good catch. I will fix the text.
  2. What is important is the unaccrued interest due to the correction proposed.

Solved the problem with USDN supply (read the update at the end of the text)

Please bear in mind that you cannot create value from thin air. The mecanism you have described is too complex and the same result can be achived simply lowering the rate for unlocked supply. You do not have to burn any excess of supply of USDN if you do not create it in the first place. Also you cannot buy USDN with imaginary USDC/T.

The problem is that the source of every point of the interest rate paid in USDC/T is USDN printing. If you create a 40% pressure and then burn 20% you are not solving anything.

What we really need is 0% APY and a very strict repay calendar for the users that would like to withdraw. Maybe this can be achieved via an smart contract where every user that would like to withdraw, can deposits their LP token in exchange of an SLOW payment calendar with no interest rate. This would also clean the balance sheet of vires from investors that want to withdraw… I think I am going to open a post with this idea

The proposal does not create anything from thin air. Read the proposal complete, please. I already talked about the lack of USDT/USDN liquidity and that while that situation is present, the reduction of interest rates will help to reduce accumulation of interest rates.

Also, you cannot just reduce the rate of unlocked supply without saying what you will do with the unaccrued interest being paid by borrowers. Well, that is exactly what the proposal does: it establishes a destination. Either buying of USDN or reduction of borrowing interest rates for USDT/USDC unlocked supplies, and burning of USDN for unlocked USDN supplies.

Waves is a close ecosystem. It cannot create USDC or USDT from the thin air. That is what I meant. In the current situation each USDT/C created as interest for the suppliers (locked or not) must be paid selling USDN.

You propose to keep printing USDC/T (which means more offer of USDN in the current situation) and with half of the printed USDC/T buyback USDN. That solves nothing and worse the situation of unlocked suppliers. I think it is late for cosmetic measures.

In my opinion we must go to the root of the problem. The only way is: a) no more printing (or at least reduce it), b) gain time (most of the proposals went in this direction) and c) boost demand for USDN and WAVES.

No, there is no printing of anything. You didn’t understand the proposal. The reduction of daily accumulation of debt is not printing anything.

And the proposal is clear: buy USDN with USDC/USDT as long as there is liquidity. While there is not, just use it for reducing borrowing interest rate. Please read proposal carefully before issuing an opinion.

You are not understanding how the ecosystem works. I am not talking about your proposal which I think is just cosmetic . Please think about this question: who is providing the USDT/C earned by suppliers in Vires and how this USDT/C is imported into waves ecosystem?

Who is providing the USDT/C earned by suppliers ← most of it, at this moment no one. That is the point: my proposal reduces the APY for unlocked suppliers. Thus decreasing the amount of accumulated daily debt for which no real USDT/USDC exists. Do you think that is just cosmetic? You are not understand the proposal. I think not even reading it. Likely you are not even reading my comments, because that is exactly what I am saying.

I like it, most of us locked in when we thought we were getting an extra 20+%. Rates for unlocked should be consistent with other platforms which currently is single digits

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LOL, told you not to lock as it was very strange proposal, I also described two possible scenarios but didnt’t realize that there was also third one: draining whole system using imported VIRES_USDN_LP tokens (while nobody can import LP tokens) :slight_smile:

The difference between negative and constructive people is that the first ones see every advance as bad because it didn’t achieve perfection. And makes fun of that thinking they are intelligent. The second ones just continue advancing and improving.

Not sure if you were talking about me but I also have few words about it :slight_smile:
I agree with you but in this case the fun/perfection/advance etc. are not the most important keys. The main problem is how to invest your money smart and as safe as possible using the ecosystem. In my opinion the locking proposal has many disadvantages and for me it is too risky as there were few problems I described. As we can see now, there could be few new problems.
If one accept the risk - it’s ok, I don’t but I still believe that that Vires will survive, the utilization drops and the big debt will be repaid.

Every lending system has locked and unlocked deposits. Traditional banks included. Locking is common in many kinds of investments and they typically yield more interests. Temporal unavailability but more interest rates. What you describe as strange is very common in financial world.

That you don’t like the disadvantages does not mean that it is strange or bad. It also has advantages. As any kind of investment. Your personal choices are not relevant here.

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Well, I described it as strange not because it provide locking possibility but mainly because the time it was proposed. Have nothing against locked deposits as I use many, even on CEXes. You can read some other topics to realize what my doubts were about. Moreover, a week after the Lock/Boost proposal was broadcasted, the fantastic yield paid in Vires drops from ~+30% to 1.5% :). Great marketing trick :slight_smile:

IMHO the best way here (don’t care about pseudo DAO) was to take two oposite positions using 50% funds for each of them:
1: Buy LP tokens and lock it
2: Buy LP tokens and don’t lock it.

1st one allows you to import LP tokens after locking period with quite fine income and withdraw the money. Probably. Who knows what will be the next proposal, just before first locking perdiod end? We all know how has enough vires tokens to make any proposal passed.

2nd one allows you to import LP tokens when the utilization drops below 80% (as nobody will withdraw the money because of locking period) but nobody knows if there will be enough money available on the market - for now seems there won’t be as the debt is not paid.

Hope one of them will success as I played that way.
As you can see I just try to find the best Risk/Reward Ratio. The best for me.

The vires yield decreased quickly because of the amount of supplies that were locked. What you think is a conspiration, it is just a sign that the system need to be improved further. And this the purpose of this proposal.

Is there no USDC now to even pay the daily revenue? It says I have $98 to claim but when I go to actually claim it I only get &10