Utilization marks the difference between what the borrower pays vs. what the lender gets.
At 80% util and 10% borrow interest the lender gets 8% (less fees)
At 90% util and 10% borrow interest the lender gets 9% (less fees)
You should read compound docs imho, not to say helpful people won’t answer you here too but it would answer nearly all of your questions without kind derailing the thread.
I would rather ship this fast in terms of the parameters (Seb’s suggestions are all gold w/ his track record), rather than trying to hyper optimize right now. Way more important to get usage testing + audits done ASAP.
Not say that stuff isn’t important, would not be surprised at all if FIP-0X would be something related to parameter optimization. I would love to work on it (I work on risk modeling).
Unless we’re using terms differently than elsewhere in defi lending, utilization refers to the % of the usdc/dai pool that is lent out, not the ratio of borrower/lender interest rates.
You’re describing the Reserve Factor - which is in fact what I’m asking about and hasn’t been touched on yet.
Respectfully, I’m familiar with comp docs and don’t think anything I’ve raised really “derails” the thread and I think it’s all reasonable to bring up.
I generally agree with you that parameter tuning isn’t the most important thing to launch and just getting something out is a fine approach, but thinking through initials and challenging our assumptions is good.
Given the proposed markets, we can reasonably expect that the effective borrow rate, rather than the absolute amount of borrowed dollars, will dictate utilization. With this in mind, the kink does affect the lending rate.
Let’s look at an extreme hypothetical example:
Protocol has 100 USDC in the pool
Borrow rate is 10% at the kink and much higher at 100% utilization.
Assume borrowers are willing to borrow as much as possible up to 10% borrow rate at equilibrium.
Variations:
(A) Kink at 10% utilization
(B) Kink at 90% utilization
In (A), only 10 USDC gets borrowed (otherwise borrow rate > 10%), so lenders collectively get 1 USDC in interest (1% lending rate). In (B), 90 USDC gets borrowed, so lenders collectively get 9 USDC in interest (9% lending rate).
While the borrow rate is the same in both variations, the kink affects the lenders’ cash drag, and therefore affects the lending rate.
We agree with @SebVentures’ suggestion to prioritize returns over liquidity, and therefore updated the proposal to move the kink to 90% (therefore reducing cash drag).
We expect to receive the audit report early next week, and once any findings are resolved, we’ll move the proposal to an on-chain vote on Tally: Tally | Ondo DAO
To incentivize early community participation in light of gas fees, we’re also proposing a 100,000 ONDO reward pool for those who delegate and vote on the genesis proposal. The pool will be distributed evenly for each action (i.e. irrespective of voting power). Delegating and voting will count as separate actions, so wallets that self-delegate and vote will receive two ‘entries’ in the pool.
Thanks for the questions. I can answer this from the perspective of Ondo.
What are the benefits of investing via the tokenized version as opposed to just buying the underlying ETF?
1. Tokens can be transferred on-chain, 24/7. For now, there are no DEX marketplaces, but we are speaking with a number of desks exploring making markets in OUSG so investors can buy/sell through them at any time. Desks can also accept OUSG as collateral for loans or derivatives contracts (instead of stablecoins) and potentially use it as a means of settlement between each other (so they are still earning yield immediately pre and post settlement).
2. Tokens can interact with smart contracts. Investors can use OUSG while leveraging the composability, transparency, and accessibility that DeFi promotes. Flux is a perfect example, where peer-to-pool lending with algorithmically-determined interest rates can take place with no intermediation. We do require that smart contracts be whitelisted in part to demonstrate that they are not subverting the transfer restrictions of the tokens.
And are you setting up liquidity pools for redemption or how does the redemption process work exactly?
OUSG can be minted and redeemed on any business day. Subscriptions and redemptions are processed based on the next daily NAV calculated by the fund admin, NAV Consulting (unless an investor specifies otherwise). Redemptions may take up to 2-3 days to settle (for an investor to receive their USD/USDC) if the fund does not have sufficient USD or USDC on hand to service the redemption immediately, as it takes some time to get cash from the sale of the ETFs.
Given how quickly OUSG can be redeemed, on-chain liquidity pools are not necessary for liquidations at Flux to function well. In the event of a liquidation, an arbitrager can purchase OUSG at a discount with stablecoins, redeem the OUSG directly with the fund, then, in 2-3 days, recoup its original stablecoins, plus a spread.
Still, you can expect on-chain liquidity pools to likely come in the future.
