# \[FIP-06\] Adjustments to the Yield Curve

**URL:** <https://forum.fluxfinance.com/t/fip-06-adjustments-to-the-yield-curve/455>\
**Category:** Governance Proposals\
**Created:** [August 15, 2023, 7:05pm UTC](https://forum.fluxfinance.com/t/fip-06-adjustments-to-the-yield-curve/455 "2023-08-15T19:05:11Z")\
**Posts on this page:** 2\
**Page:** 1

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**Author:** ![FluxFinance](https://yyz2.discourse-cdn.com/flex030/user_avatar/forum.fluxfinance.com/fluxfinance/32/13_2.png) [@FluxFinance](https://forum.fluxfinance.com/u/FluxFinance)\
**Post date:** [August 15, 2023, 7:05pm UTC](https://forum.fluxfinance.com/t/fip-06-adjustments-to-the-yield-curve/455/1 "2023-08-15T19:05:11Z")

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### Summary

**Proposed Changes**

- 0% Utilization Rate: Shift from 0% APY to OBFR - 100bps.
- 100% Utilization Rate: Change from OBFR + 300bps to OBFR + 50bps.

**Scope** : Changes to be applied uniformly across all stablecoin markets, including USDC, USDT, DAI, and FRAX.

**Objective** : Make the yield curve incentivize a target utilization of 90% while enhancing borrower retention by mitigating rate spike concerns.

### Introduction

Since the Flux genesis, our yield curve was architected to achieve an optimal balance, incentivizing both lenders and borrowers. Over the past months, we’ve noted data points and gathered direct feedback from our users. This has brought to our attention areas where yield curve adjustments might be beneficial for the protocol.

### **Current Interest Rates for all stablecoin markets**

- 0% utilization → 0% APY
- 90% utilization (kink) → Overnight Benchmark Funding Rate (OBFR) - 50 bps
- 100% utilization → OBFR + 300bps

### Scope

These modifications would be applied across all stablecoin markets, namely USDC, USDT, DAI, and FRAX.

### Proposed Changes

1. **Adjustment of the Borrow Rate at 0% utilization (Y-intercept rate)**  
We propose an increase of the base borrow rate from 0% to **OBFR - 100bps**. This revision is driven by our aim to deter underutilization of Flux by borrowers. Furthermore, this adjustment benefits lenders thanks to enhanced supply rates when utilization remains under the 90% utilization target.
2. **Keep the same Borrow Rate at 90% utilization (kink)**  
We propose to keep the interest rate rule at 90% utilization, meaning that the rate will remain **OBFR - 50bps**.
3. **Adjustment of the Borrow Rate at 100% utilization**  
We propose a decrease of the maximum borrow rate from OBFR + 300bps to **OBFR + 50bps.**  
This revision is driven by feedback from our borrower community. Many have communicated that the APY spikes when utilization exceeds 90% are prohibitively expensive. Borrowers shared they would repay irrespective of the magnitude of this spike, given the negative net yield they experience on their leverage.

As of August 15, 2023, OBFR is at 5.33%. The proposed changes would adjust the curve parameters as follows:

| Utilization | Borrow Rate |
| --- | --- |
| 0% | 4.33% |
| 90% | 4.83% |
| 100% | 5.83% |

 ![Flux_Interest_Rate_Model_-_Proposal](https://canada1.discourse-cdn.com/flex030/uploads/fluxfinance/original/1X/1bd886e6f19499a7f84a1e333e9c94d0b85292e6.jpeg)

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<div class="post-metadata">

**Author:** ![FluxFinance](https://yyz2.discourse-cdn.com/flex030/user_avatar/forum.fluxfinance.com/fluxfinance/32/13_2.png) [@FluxFinance](https://forum.fluxfinance.com/u/FluxFinance)\
**Post date:** [October 16, 2023, 9:34am UTC](https://forum.fluxfinance.com/t/fip-06-adjustments-to-the-yield-curve/455/3 "2023-10-16T09:34:47Z")

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