MIP-21┃Adjust Tokens Collateral Parameters for paUSD on Ethereum

Summary:

This proposal aims to adjust tokens collateral parameters for paUSD on Ethereum.

Context:

Following last month’s market changes (tokens liquidity, volatility, global interest rates raises, increased transaction costs on Ethereum) we propose an adjustment of the parameters of tokens allowed as collateral for paUSD on Ethereum to fit with updated risk parameters and global market conditions.

Rationale:

Below are the current collateral parameters for token allowed as collateral for paUSD on Ethereum:

(More details available here)

We propose to adjust collateral parameters as follows:

(In blue the proposed changes, more details available here)

Proposed Changes Summary:

• Minimum Collateral Ratio (MCR) / Liquidation Ratio (LR) / Liquidation Bonus (LB) / Debt Limit: In order to properly adjust minimum collateral ratios of all assets allowed as collateral for paUSD on Ethereum we implemented the LTV calculation formula theorized by RiskDAO. The proposed formula:

• Where:
  • σ is the price volatility between the collateral and debt asset calculated by using the Parkinson volatility formula on the biggest daily price change during the last 180 days.
  • β is the liquidation bonus.
  • ℓ is the available liquidity with the slippage of β .
  • d is the borrow cap of the debt asset.
  • c is a confidence level factor. The higher c is, the odds for insolvency are decreasing.

You can find detailed calculations for each asset here.

• Initiation Fee (IF): No changes proposed.
• Borrow Rate (BR): Following recent market changes, creating increased demand for stablecoins, and a global increase in stablecoin borrowing rates (cf. GHO → 5.36%, crvUSD → 5%, etc.), we propose to increase interest rates for non-productive tokens to 1.80% per annum, and at least 2.10% per annum for productive tokens (more details here).

Means:

• Human Resources: Multisig signers will need to sign and execute transactions to adjust tokens collateral parameters for paUSD on the Ethereum Multisig.
• Treasury Resources: There is no cost for the treasury to adjust tokens collateral parameters for paUSD on Ethereum.

Technical Implementation:

• In the ‘ConfigProvider’ contract call the function ‘SetCollateralConfig’ for each token where changes are needed with approved parameters. (USDC, wETH, wBTC, CRV, BAL, AAVE, LINK, SUSHI, wstETH, wUSK, wFRK, RAI, LUSD, cbETH)