Summary
This proposal aims to update some of the risk parameters for ALGO. The proposed changes aim to increase capital efficiency, improve liquidity management, and optimize lending conditions while maintaining platform stability.
| Parameters | Current Value | Proposed Value |
|---|---|---|
| Variable Base Rate (RV0) | 2.00% | 0.00% |
| Variable Slope 1 Rate (RV1) | 9.00% | 6.50% |
| Variable Slope 2 Rate (RV2) | 200.00% | 100.00% |
| Optimal Utilization Ratio (Uopt) | 80.00% | 90.00% |
| Borrow Cap ($) | 25,000,000 | 50,000,000 |
Rationale for Proposed Changes
Optimal Utilisation Ratio (Uopt) Increase from 80% to 90%
The increase in the Optimal Utilisation Ratio (Uopt) from 80% to 90% aims to improve capital efficiency by enabling the protocol to make more effective use of available liquidity. This adjustment will allow users to borrow more of the available liquidity, improving the overall lending dynamics of the platform. By setting the Uopt ratio at 90%, the protocol will better align with the growing demand for ALGO and enhance liquidity utilization, ensuring that the protocol is capital-efficient.
Reduction of Variable Base Rate (RV0) from 2% to 0% and Variable Slope 1 Rate (RV1) from 9% to 6.5%
The reduction of the Variable Base Rate (RV0) from 2% to 0% and the Variable Slope 1 Rate (RV1) from 9% to 6.5% is aimed at optimizing the interest rates. With the optimal point set at 6.5%, this adjustment will help maintain more competitive and attractive rates for borrowers. This change will reduce borrowing costs at the optimal point and incentivize increased borrowing activity.
Reduction of Variable Slope 2 Rate (RV2) from 200% to 100%
Lowering the Variable Slope 2 Rate (RV2) from 200% to 100% is designed to soften the impact of interest rate increases above the optimal ratio. This will allow the protocol to continue lending at slightly higher utilisation rates without seeing drastic increases in interest rates.
Increase in Borrow Cap from $25 Million to $50 Million
Raising the borrow cap from $25 million to $50 million will accommodate the growing demand for ALGO borrowing within Folks Finance.
