Summary

Following an analysis of the WETH market’s utilization and interest rates, we provide a recommendation to update interest rate parameters for the WETH market.

Analysis

Seamless’s WETH market is currently at 39% supply cap utilization and 43% borrow cap utilization, representing an overall utilization rate of 44%. UOptimal is currently set at 80%.

The WETH market has consistently been below UOptimal and thus below Slope1, currently set at 3.80%. However, we also note that rates have been steadily increasing since mid-March.

The vast majority of collateral against WETH is WETH itself, while most of the debt against WETH is USDC. This indicates that much of the borrow utilization in this market is WETH-WETH looping, which is likely less sensitive to interest rate curve changes.

Additionally, supplying is currently incentivized by SEAM and esSEAM rewards.

Given the market’s makeup and ongoing incentives, we recommend decreasing Slope1 to increase utilization. We do not recommend increasing UOptimal at this time. However, based on future observations, this may become prudent. We also note that given the looping behavior and incentives, reactions to this rate change may be muted at first, and we will continue to monitor this market closely.

Specifications