UIP-10: Raise USL Maximum Loan-to-Value (LTV) to 86%

Abstract

This proposal seeks governance approval to increase the Maximum Loan-to-Value (LTV) parameter of the Usual Stability Loan (USL) from the current 83% to 86%. The goal is to enhance capital efficiency while maintaining the core design principle of preventing premature liquidations.

Background

The Usual Stability Loan (USL) is a fixed-rate borrowing instrument launched on February 14, 2025, where borrowers lock USD0++ as collateral on Euler. Borrowers receive liquid USD0 stablecoins upfront and repay the principal plus accrued interest in a single bullet payment at maturity, set for June 11, 2028.

Risk management for USL involves two key parameters:

• Maximum LTV: The maximum loan-to-value ratio allowed at the inception of the loan.
• Liquidation LTV (LLTV): The threshold at which collateral may be seized, set initially at 99.99% to minimize adverse liquidations.

Current Parameters

Parameter	Current Value	Rationale
Max LTV	83%	Provided approximately a 2-percentage-point buffer below LLTV for a term of ~3.32 years.
LLTV	99.99%	To minimize premature liquidations.
Fixed Rate	5% p.a.	Fixed interest rate for the entire term.

At launch, the LTV was conservatively set to provide a safety margin, ensuring the loan would remain below LLTV at maturity.

Proposed Adjustment

Given the proven robustness of the USL product and the shorter remaining term (~2.96 years as of June 26, 2025), we propose adjusting the Maximum LTV to enhance capital efficiency:

• Increase Maximum LTV: from 83% to 86%
• Maintain LLTV: at 99.99% (unchanged)
• Interest Rate: remain fixed at 5% p.a.
• Maturity Date: remain set for June 11, 2028

Rationale

The new 86% LTV aligns precisely with the reduced term of the loan, calculated to ensure the loan will touch the LLTV threshold only at maturity:

• Remaining term: 2.96 years
• Growth factor (continuous compounding at 5%): approximately 1.160
• Equivalent starting LTV calculation: 99.99% / 1.160 ≈ 86.2%

This adjustment ensures compliance with the core principle of no-liquidation prior to maturity, while simultaneously optimizing collateral efficiency.

Expected Outcome

• Enhanced capital efficiency for borrowers, unlocking approximately 3% more collateral value.
• Preservation of the original liquidation profile, maintaining systemic stability and borrower confidence.

Implementation Steps

1. Submit an on-chain governance proposal updating the Max LTV parameter in the USL smart contract from 83% to 86%.
2. After standard governance procedures and delay, implement changes, effective for both existing and new positions.

References

• USL Economic Risk Assessment Report v2.3, Table 2, p.8.
• USL Launch Announcement, Discord #governance channel (Feb 14, 2025).
• USL LTV update paper