VIP-024 post mortem proposal

Interests paid on vires are undoubtedly unsustainable. And in its spirit, VIP-024 is a necessary step. But I think that not only parameters must be improved, but the proposal also must be accompanied by a couple of other modifications.

First, consider that when you set a unique major market borrow interest rate, this interest rate can be used for arbitraging on minor market: if minor market interest rates are greater than the major market APR, then big players will borrow at low interest rate on major market and supply with small accounts on minor markets, thus driving down the minor market APR too.

So, this interest rate must not be excessively low, thus creating artificial expansive effect and raising among the community the concern that whales are benefited with very low interest rates, at expense of others. A rate of 10% is probably a better initial testing rate that can be further adjusted.

Regarding the gvires protocol share reward, the current 10% is probably ok, but I think that by increasing it to 20%, the proposal will be more acceptable by the community. Certainly the rewards received by vires stakers will still decrease significantly, but there is no sense in having big rewards on a platform with serious problems. Rewards must reflect the health of the platform.

In addition, we must not lose sight of other points of stress in the current design of vires. As said, interest rates are too high to be sustainable, and the proposal attacks one of the sources of this problem. But there are others equally important.

Right now collaterals are borrowable (so they yield an interest rate). This is wrong, because collateral role requires it to be always available. VIP 012 introduced locked supplies that cannot be used for collateral, thus introducing separation between liquidity supplies and collateral. That proposal went in the correct direction and improved things, but was incomplete. Still collateral and non locked supplies are a single one category in vires, that must also be separated.

The other major problem is the high interest rates of non locked supplies. Readily withdraw availability is not compatible with high interest rates. And when the rewards of locked supplies are similar to non locked ones, clearly it is a symptom that structure of incentives is wrong. A possible solution is to set max APR of non locked supplies, to a value in the order of major market APR. Half of it (5%) could be a good starting value that can be further adjusted. The resulting excess of interests paid by borrowers would be transferred to locked supplies.

The final question is whether to make all these updates in a single or multiple proposals. Probably the best alternative is to have separated proposals applied in the following order:

  1. Replacement of VIP-024, but with 10% borrowing rate and 20% of gvires protocol share
  2. Unborrowable collaterals
  3. Set low max APR for non locked supplies (5%) and transfer any excess interest paid by borrowers to locked supplies.

2 probably it is very easy to implement (there is already a switch to turn supplies unborrowable) but requires alternative liquidity available so it needs progressive application, and 1 being already in place in order to minimize effect.

3 probably requires additional development effort.

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I think a proposal which benefits gVires holders will get more traction, I agree. I also agree that we need a way to ensure stable and predictable liquidity for the platform. If we can find a way to do both of these things without asking initial investors in Vires to fall on their swords (again) we will likely be able to get people behind it.

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Hey WL Martin, I looked at your proposal and there are a couple of things unclear to me.

  1. can you clarify what you mean with major and minor markets?
  2. can you explain how the arbitrage would work? Please define which asset would be supplied at what apr, which asset would be borrowed at what apr and which asset would be supplied at what apr.
  3. for what market do you propose the 10 and 5% apr? all?
  4. if collateral is unborrowable in all cases. why would one borrow at such high apy’s on vires instead of on aave?
  5. aren’t you basically forcing everyone to lock if the apr is only 5%? woundn’t this exclude 95% of the market of smaller suppliers?

I feel that the changes you propose are quite severe and undermine vires as a platform from the core. Not even sure they make sense and if it does, I don’t believe it would work, but maybe your clarifications change my view. Looking forward to them!

  1. major market is major players market, the one proposed to add, for accounts > 1M. Minor market is minor market players, the current one.
  2. That is explained in the text: borrow at low interest rate in the major players market, and supply at bigger rates with smaller accounts on minor players market.
  3. That is clear in the text: the 10% is the fixed rate in major players market. 5% is the max rate in the minor players market
  4. what do you mean by “such high apy’s”? interest rates will be reduced with these changes. Right now they are very high and people didn’t stop to borrow because of that. The borrowings are paused by forced rules, not because nobody want to borrow. So what makes you think that with lower rates they will do?
  5. Why? that depends on preferences. There are people that prefer low interest in order to withdraw at any time, and others that prefer to lock for getting high interest. Locking is a cost. And that must be compensated with higher interest rates. This works in the same way as any lending in the world, including crypto. No where you will be paid high interests for a non locked supply. You give AAVE as example. Did you check how much AAVE is paying for supplying USDC for example? Less than 1%. USDT is paid 1.5%. And you are worried about a max supply APR of 5% for non locked supplies?
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