AIP #13.6: Further Amendment on interest rate

Governance Proposals Voted Proposals
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tl;dr Abracadabra is currently exposed to significant amounts of CRV risk. To address this, a strategy is proposed to apply collateral-based interest to both CRV cauldrons.

All proceeds from this strategy will be kept in our treasury and used to reduce the DAO risk associated with the liquidity conditions associated with CRV.

The difference between 13.5 and this proposal is highlighted in the Amendments sections.

Background

I believe that the repayments which have been made as well as potential increases in CRV liquidity call for a change in the proposed increases of interest. Therefore, I have voted against the previous proposal and am presenting new terms.

Strategy Proposal

In order to avoid unnecessary compounding of principal interest, I would like to propose applying collateral-based interest, much like the DAO did with the WBTC and WETH cauldrons [Link]. I believe this solution will reduce negative externalities associated with such positions compared to a simple interest rate hike.

The effect of collateral-based interest is such that all interest will be charged directly on the cauldron’s collateral and will immediately move into the protocol’s treasury to increase the reserve factor of the DAO. Once in the treasury, the collateral can be converted to MIM via on-chain transactions or through one of our off-chain partners.

The proposal will have a base interest rate, which will be dependent on the combined outstanding principal of the both CRV cauldrons:

  • 0x207763511da879a900973A5E092382117C3c1588
  • 0x7d8dF3E4D06B0e19960c19Ee673c0823BEB90815

Amendments from AIP #13.5:

Since the posting of AIP 13.5 on 01/08/23 the situation around the MIM loan backed by CRV as well as the overall on-chain liquidity conditions have changed.

Multiple repayments have been executed bringing the total amount of MIM backed by CRV assets to 12.5m.

Furthermore, Convex and Curve communities have expressed willingness to execute a coordinated effort in bringing more CRV liquidity on chain.

In order to reflect these new variables, the new model proposed to the community focused on a base interest (charged as explained in the previous paragraphs AIP 13.5 to reduce sell pressure of CRV on the market), to which discounts can be applied based on:

  • Principal Size
  • Position Health
  • On Chain Liquidity

To reflect these changes in the interest rate increase proposed in AIP 13.5, the new proposed interest rate to be voted by the DAO is the following:

Principal Base Interest Rate
$10M-$12M 150%
$5M-$10M 80%
$0M-$5M 30%

Interest Rate Multiplier is replaced by following values and the ability to influence the overall base interest rate. The following discounts will be applied on the base interest rate above (eg. 80% - 20% = 60%)

Collateral Ratio Interest Rate Change
<= 40% - 20%
<= 50% 0%
<= 60% + 15%
<= 70% + 25%

Onchain Liquidity section

TriCRV: crvUSD/ETH/CRV Curve liquidity Interest Rate Change
5M <= 10M USD - 5%
10M <= 20M USD - 10%
20M <= 30M USD - 15%
30M <= 40M USD - 20%

Note: the current collateral based interest is applied in addition to the base $MIM interest rate highlighted in AIP #13.1. Also note that if the on-chain liquidity conditions and collateral ratio conditions are met, and the base interest goes below 0%, the interest rate on the collateral is voided and only the MIM interest rate will be charged.

Further changes to these set up can be voted by the DAO using 24 hours snapshot votings.

Resources

https://forum.abracadabra.money/t/aip-13-add-a-crv-cauldron/4055
AIP #13.1 - $CRV Interest Rate Adjustment

https://forum.abracadabra.money/t/risk-assessment-increase-of-crv-cauldron-interest-rate/426

Voting

Due to the time sensitive nature of this proposal, which reflects the volatile evolution of CRV liquidity, the following proposal is already posted on snapshot and will go live on snapshot at 6PM ET on 02/08/23.

Voting will continue for 72 hours.

At the end of the 72 hours, if the proposal passes, the new CRV interest rates will be applied to both CRV cauldrons.

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I like this proposal. It is easy to understand, and clearly encourages debt repayments. It is also based on easily understandable and measurable metrics! I’mma vote for.

2 Likes
3

Given the changes and the repayments made, it makes sense to slightly improve the conditions in AIP 13.5.

This proposal still seems an aggressive hikes in interest which will create improvements in the risk of the dao.

Seems better.

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Good discussion with DEFI community today. I support the changes here

2 Likes
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I like this change. As on-chain liquidity increases, the risk to Abra as a result of this position decreases. Same goes for the outstanding mim, which has also decreased. I hope everyone sees that the team is interested in being fair here, and is not trying to rug anyone but rather making the best decision in a shitty situation.

Full support for the proposal. However, I’d suggest leaving room for more flexibility depending on the further cooperation by Mich and/or the full length of the increased liquidity. Abra is only trying to keep in line with it’s competitor aggressive lending practices, especially since the loan should currently be priced like a Short Put. As liquidity picks up, it can once again act as a loan (depending on outstanding lent to this collateral type across all protocols) in which case revisions would make a lot of sense.

Ref 1: https://twitter.com/0xWenMoon/status/1686803901041831946

Ref 2: https://twitter.com/0xWenMoon/status/1686743446831165440

3 Likes
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awesome!! good backup proposal, definitely support this one too!! should ease peoples worries and show that the abracadabra team and community do listen!!! looking forward to getting this vote done.

1 Like
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I think we all agree that the haircut on the CRV cauldrons was not high enough and that some form of proactive risk-management is necessary for money-market protocols.

But I’m not sure this change would set a good precedent, the amended rates are still too high imo - the cost of the loans would be too high for him to live with even temporarily and in practice it would still be seen as a mandatory loan reduction to below $5m.

Pushing this change would incentivize Mich to pay back those loans before the Aave one but it would set us on a non-cooperative course vis-a-vis the rest of DeFi while most others (including Aave themselves) are gearing up to resolve the situation.

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Yeaa definitely wanna keep the peace, but also wanna keep wizards and witches heads above water!! Abra has received a lot of unfair treatment which has caused a lack of trust in $MIM $SPELL from some. The team always tries to provide and many wizards and witches get to take advantage. Situations like this should be understood, regardless of how disliked the teams reaction is. Plus, the abra team deserves waaaay more trust, not less. The rest of DeFi should understand that, especially after what the teams been put through. Less trust doesnt seem like an outcome at this point, or at least it shouldnt be!

1 Like