[0IP-27] Adjust Interest Curve for More Efficient Liquidity Allocation

Proposal:

The protocol proposes to adjust the dynamic interest curve parameters to ensure better liquidity management. The proposed changes to the dynamic interest curve parameters should be implemented on Polygon zkEVM and PoS.

This comprises of the following vote:

1. Modify the dynamic interest curve parameters, maintaining the current structure before reaching the utilization threshold, but increasing the borrow rates after the threshold to encourage liquidity provision.
2. Eliminate all incentives for the vGHST market, due to the exploit and the pause in vault maintenance. By raising the interest rate, we motivate people to repay their debts. Additionally, increasing the reserve factor eliminates all opportunities of profiting for lenders. If you have vGHST debt that you wish to repay, you can mint it using this link.

Motivation:

After addressing the exploit and reopening the markets, it's important to ensure that everyone's motivations are in line. As some wallets will withdraw funds, the market utilization could rise significantly. This is why it's crucial to appropriately establish incentives to keep everything running smoothly. Setting higher interest rates encourages swift repayments, and it also provides a chance to generate higher returns on deposits.

Events, such as the USDC depeg where the USDT market reached 100% utilization, were quite extreme and highlighted the importance of setting the right incentives for liquidity management on 0VIX. Though such situations may be rare, it is crucial to be prepared and have mechanisms in place that encourage borrowers to act responsibly and help maintain market stability.

This proposal intends to maintain a similar interest rate before the utilization threshold is reached while imposing a higher penalty on borrowers/reward for suppliers once the threshold is crossed. This adjustment discourages excessive borrowing and encourages supplying liquidity in low liquidity situations.

Details:

All Markets except vGHST:

Parameters to create the following interest rate curve:

• BorrowRate_at_MaxUtilization = 100%
• UtilizationTarget = 80%
• BorrowRate_at_UtilizationTarget = 10%
• Gamma = 18

vGHST Market:

• Set fixed interest rate of 50% and double it every 2 weeks
• Increase Reserve Factor to 100%
• Pause mints
• Pause borrows

Quorum Standards:

• 100k preVIX

Voting period:

• 3 days

Vote options:

• Option 1: Accept the proposal
• Option 2: Further discussion needed