Simple Summary
Given heightened market activity and elevated volatility across ETH markets Gauntlet recommends the following Interest Rate (IR) Curve updates across WETH comets on Ethereum. These changes are designed to keep borrow costs low and avoid liquidations during the volatile period.
Motivation
The recent Kelp exploit has led to heightened volatility and shifting dynamics across ETH-correlated assets. In this environment LST/LRT-based looping strategies are facing a significantly high negative carry. The recommendations below flatten the slope below kink and compress the slope above kink resulting in lower kink and max borrow rates across all WETH markets.
The intent is to:
- Keep Compound’s WETH borrow rates not too high so that unwinding can happen gradually in a volatile environment.
- Decrease existing borrow positions gradually without pushing rates to a level that would unwind a high amount of the existing ETH-leverage positions. We will continue to monitor utilization and reserve growth and will adjust as conditions evolve.
Specification
Target APRs at kink and at 100% utilization across the comets:
| Comet | Kink Rate | Max Rate |
|---|
| Base WETH | 1.50% | 3.00% |
| Arbitrum WETH | 1.50% | 3.00% |
| Optimism WETH | 1.50% | 3.00% |
| Linea WETH | 1.50% | 3.00% |
| Unichain WETH | 1.50% | 3.00% |
| Borrow kink is held at 90% across all markets. The base rate is held constant at current values. Slope Low and Slope High are updated to achieve the target kink and max rates above. Forum Post | | |
