[EXAIP-19] Update to Time Decay Parameter (β_slow) in the IRM

Proposal ID: EXAIP-19 Proposer: Exactly Core Team Date: January 25, 2025.

Summary

This proposal seeks to update the time decay parameter (β_slow) in the Exactly Protocol’s Interest Rate Model (IRM) from 0.0046 to 0.000053 for all the assets. This change slows the protocol’s response to supply increases above the moving average, ensuring smoother fixed-rate adjustments and improved stability for borrowers.

Background

The Exactly Protocol employs an Exponential Moving Average (EMA) of supply to calculate utilization rates, deterring manipulation. The time decay parameter (β_slow) governs how quickly the protocol adapts to supply increases exceeding the moving average. While effective, the current setting (β_slow = 0.0046) results in sharp fixed-rate drops, leading to volatility that impacts borrower experience.

Reducing β_slow to 0.000053 will allow for more gradual rate adjustments, improving predictability without compromising the protocol’s defense against fixed-rate manipulation.

• Current Parameter Details: Link
• Math Explanation: Link

Proposed Change

• Current Value: β_slow = 0.0046
• Proposed Value: β_slow = 0.000053

This adjustment will:

1. Create smoother interest rate transitions.
2. Enhance the borrower experience by reducing volatility.
3. Maintain security through the EMA-based calculation.

Simulations (USDC Market)

Current (β_slow = 0.0046):

• Initial fixed rate: 1825%
• After 15 minutes: 7.5%
• After 2 hours: 7.4%

Proposed (β_slow = 0.000053):

• Initial fixed rate: 1825%
• After 15 minutes: 661.7%
• After 2 hours: 36.8%
• After 4 hours: 15.8%

The proposed change results in more gradual rate decreases, providing borrowers a predictable rate environment.

Rationale

1. Improved Stability: Reduces sharp fixed-rate fluctuations, making borrowing terms more predictable.
2. Enhanced Security: Retains protection against manipulation through the EMA structure.
3. Broader Adoption: Predictable rates attract retail and institutional users, boosting protocol adoption.

Implementation

1. Submit this proposal for community governance approval.
2. Upon approval, update the parameter in the IRM configuration.
3. Monitor the protocol post-implementation to ensure expected behavior.

Conclusion

Reducing β_slow will enhance stability and improve user experience while preserving protocol security. We recommend voting in favor of EXAIP-19 to drive Exactly Protocol’s growth and usability.