This is a proposal to increase the borrow rates for non-yield bearing collateral assets of the borrowing module.
Right now, it costs 2.5% a year to borrow the non-yield bearing collateral assets of the borrowing module, with respect to 4% for the yield bearing vaults (like bIB01, wstETH, …).
Rationale for this difference was that with stEUR now live and yielding 3.8%, the opportunity cost when using a non yield-bearing asset to borrow agEUR for like 2.5% and stake it for more is lower than the opportunity cost for not having a non yield bearing collateral asset in the first place.
Yet with the launch of the Arbitrum STIP incentive program, the borrowing activity from USDC to agEUR that is then staked to stEUR has surged, and the protocol is essentially providing to many LPs with a riskless arbitrage opportunity between the borrowing cost and the stEUR rate.
Proposal is to increase the borrowing costs across all non-yield bearing vaults to 4%.
The non yield bearing collateral assets of the protocol include:
- USDC (Ethereum, Polygon, Optimism, Arbitrum, Avalanche),
- wETH (Ethereum, Arbitrum, Optimism, Polygon)
- LUSD (Ethereum)
- wBTC (Polygon, Ethereum, Arbitrum)
- wMATIC (Polygon)
- miMATIC (Polygon)
- wAVAX (Avalanche)
- OP (Optimism)
This proposal can be simply implemented by calling the setRate function across all concerned vaults
The risks here is that it may result in less borrowing activity on the Angle side due to the increased cost. On the other hand, it might also result in an increased revenue for the protocol which is not giving away useless funds to arbitrageurs.
Happy to hear everyone’s thoughts on this one!