MIP-23 l Partial Automated Borrow Rates Adjustments

Summary: The proposal aims to enable partial automation of borrow rates adjustments for PAR & paUSD.

Context: MIR-32 & MIR-33, which increased PAR and paUSD borrow rates to between 4.20% and 4.50% p.y, helped reduce selling pressure on PAR and paUSD. However, with the ever-increasing borrow rates on the DeFi monetary markets (~10% p.y on Curve, ~15% p.y on Aave) allowing interest rates to be arbitraged between money markets, selling pressure continued to increase on PAR & paUSD on Ethereum, creating a depeg of the latter.

In addition, the recent depeg of the jEUR on Polygon due to their bad debt has led to a depeg of the PAR (PAR has not suffered any exploit), largely due to the way PAR liquidity is structured (the main pool of PAR on Polygon is the PAR/jEUR on Balancer) as well as the peg mechanism (soft peg).

Rationale: With the aim of keeping the price of PAR and paUSD as close as possible to the EUR and USD, we propose to set up partial automatic borrowing rates.To achieve this, we propose to delegate the management of borrowing rates to the Multisig DAO on a partial basis, which will only be able to act within the framework defined below in this proposal:

• The sole purpose of adjusting borrow rates is to keep the PAR price as close as possible to the EUR and the paUSD price as close as possible to the USD.
• This framework includes PAR and paUSD, on all the chains where they are deployed.
• Interest rates per annum must range from a minimum of 3.00% to a maximum of 18.00% per annum for all tokens authorized as collateral.
• It will only be possible to modify interest rates every 72 hours minimum.
• Productive assets allowed as collateral must have a borrow rates 0.30% p.y higher than non-productive assets.
• Adjustment of borrowing rates must be between 0.30% p.y and 1.20% p.y, in slopes of 0.3% (0.30%, 0.60%, 0.90%, 1.20%) and subject to this table:

To determine the price of PAR and paUSD and adjust borrowing rates accordingly, the DAO multisig signers will use an aggregator (e.g. Paraswap) and simulate a $10,000 swap. Users & DAO members will be able to follow borrow rates adjustments here.

We also propose to adjust borrow rates for non-productive assets to 9.00% p.y and 9.30% p.y for productive assets before starting partial automated borrow rates adjustments.

Means:

• Human Resources: Multisig signers will need to sign transactions to execute the proposal
• Treasury Resources: There will be no treasury resources needed to execute the proposal.

Technical implementation:

• On Ethereum, Parallel DAO multisig will call following smart contracts:
  • PAR ConfigProvider contract:
    • Call ‘SetCollateralBorrowRate’ function with these parameters:
      • ‘_collateralType’ : [token address]
      • ‘_borrowRate’ : [borrow rate]
  • paUSD ConfigProvider contract:
    • Call ‘SetCollateralBorrowRate’ function with these parameters:
      • ‘_collateralType’ : [token address]
      • ‘_borrowRate’ : [borrow rate]
• On Polygon PoS, Parallel DAO multisig will call following smart contracts:
  • PAR ConfigProvider contract:
    • Call ‘SetCollateralBorrowRate’ function with these parameters:
      • ‘_collateralType’ : [token address]
      • ‘_borrowRate’ : [borrow rate]
  • paUSD ConfigProvider contract:
    • Call ‘SetCollateralBorrowRate’ function with these parameters:
      • ‘_collateralType’ : [token address]
      • ‘_borrowRate’ : [borrow rate]

Voting Options:

• Accept Partial Automated Borrow Rates Adjustments
• Against/Rework the proposal
• Abstain

Authors: Jean Brasse from Mimo Labs