SAIP #57.1 - Update to USD0++ Cauldron Parameters
Summary/Scope
This proposal seeks to update the parameters of the USD0++ cauldron initially introduced in AIP #57. The proposed changes aim to reduce risks, increase profitability, and make the cauldron more attractive for users. The updates include an increase in the Maximum Collateralization Ratio (MCR) to 90%, a reduction in liquidation fees to 2%, an increase in the interest rate to 12%, an increase in the MIM cap to 5 million from the 2 million initially proposed, and the integration of an updated oracle that uses Pyth’s USD0++ price feed.
Updated Cauldron Parameters
- Interest Rate: 12%
- Borrow Fee: 0.5% (unchanged)
- Maximum Collateralization Ratio (MCR): 90%
- Liquidation Fee: 2%
- MIM Cap: 5 million
- Oracle: Updated to use USD0++ price feed - Proposed Integrations:
[0xEb58304C786a9961bB04CC4236C31EBe713db291
[0xFC9e30Cf89f8A00dba3D34edf8b65BCDAdeCC1cB]
Background
We propose the following updates:
- Increase in MCR to 90%: This change aims to provide additional borrowing power to users and reduce their risk of liquidation. It reflects the deep liquidity of USD0++ and the updated oracle, both of which enable timely and safe liquidations.
- Reduction of Liquidation Fees to 2%: Lowering the liquidation fee reduces risk for users by minimizing penalties in the event of liquidation. Additionally, it increases the protocol’s margin for healthy liquidations. The need for a high liquidation fee is also reduced by the improved accuracy of the updated oracle.
- Increase in Interest Rate to 12%: Raising the interest rate enhances the profitability of the cauldron, generating more revenue for the protocol and SPELL stakers. Given the current high yield of the cauldron, it will still remain attractive with this increased interest rate.
- Increase in MIM Cap to 5 million: Given the increased demand for the cauldron, the reduced oracle risk, and the increased margin for a healthy liquidation, it seems appropriate to increase the MIM availability on the cauldron.
- Updated Oracle using Pyth’s USD0++ Price Feed: Integrating a more accurate price feed reduces risks of the cauldron as it allows for a lower liquidation fee, which in turn allows for a higher MCR. Broadly, this gives users a better experience as well as reduces risks of the cauldron.
Profitability
With the updated parameters and a 5 million MIM borrowed, this cauldron is projected to generate approximately 600,000 MIM annually for the protocol and SPELL stakers (without any consideration for borrow fees). This represents a 175,000 MIM annual increase compared to the revenue generated with the current interest rate for the same 5 million MIM borrowed.
Technology
The USD0++ cauldron implementation remains the same as was approved in AIP #57. However, the oracle will change to the Pyth USD0++ oracle. This represents a significant change from all previous cauldrons as it will introduce the first pull-based oracle in a cauldron. A pull-based oracle means that the oracle is not updated on-chain by an external network continuously, but instead updated only on demand, and generally by users themselves. Such an update will be required for most operations on the cauldron, such as borrowing, removing collateral, and liquidations.
Conclusion
The proposed updates to the USD0++ cauldron parameters, including increases to the MCR, interest rate, and MIM cap, a reduction in liquidation fees, and the integration of Pyth’s USD0++ price feed, are designed to reduce the risks for users and protocol, increase profitability, and improve user experience.
Voting
The current proposal will follow the Speedlane AIP framework, with 24 hours discussion period, and 24h voting period.
Voting can be found here.