[AIP-16] Adjusting Slope3 max interest rate

Background:

With the success of AVs repurchasing rollout, we have seen a strong demand in AVs which pushed up the borrowing utilization rate to 70%-90% for stable coins (BUSD and USDT.) Our [AIP-10] Further optimizing the borrowing interest rate slope proved to be a success. During the increase in utilization, farmers continued to enjoy stability in borrowing rates and farmed profitably while lenders also saw an increase in their lending interest.

However, recently, we have seen a brief period where USDT’s utilization > 90%. In this discussion we would like to propose adjusting the max. slope3 value down from 150% → 40%

Rationale:

Currently the max borrowing rate in the slope3 region is set at 150% APR. This value makes for a very steep slope in the 90%-100% utilization range. A utilization just slightly above 90% would make farming unprofitable -e.g., 92% utilization = 36% borrowing interest. This model has two potential issues

• It can scare new users who do not understand the model well when they see negative APR on the Farm and AV pages
• It could allow for some players to manipulate the rate around the 90% utilization range with relatively small capital.

Also, in reality, any borrowing APR% above 20% will already make all the major LYF pools unprofitable, which means a max slope3 rate much lower than the current 150% could achieve the same effect of 1.) attracting more liquidity to the lending pools and 2.) incentivizing users to close their positions, but in a more gradual manner.

Implementation:

• We propose reducing the max borrowing rate in the slope3 region to 40% APR for all lending vaults. (except $CAKE)
• Borrowing interest for slope1 and slope2 regions will be left unchanged.

Example adjustment for BNB borrowing rate:

Utilization	New Interest Rate	Current Interest Rate
90.0%	8.00%	8.00%
91.0%	11.20%	22.20%
92.0%	14.40%	36.40%
93.0%	17.60%	50.60%
94.0%	20.80%	64.80%
95.0%	24.00%	79.00%
96.0%	27.20%	93.20%
97.0%	30.40%	107.40%
98.0%	33.60%	121.60%
99.0%	36.80%	135.80%
100.0%	40.00%	150.00%

Voting:

We will do a simple YES or NO vote for this AIP

• A YES vote would adjust the max slope3 interest rate down to 40%
• A NO vote would leave the interest rate as is.