OLIP-10 Proposal: Refinement of OpenLeverage's Interest Rate Model for Enhanced Market Responsiveness

Summary:

OpenLeverage's existing interest rate model dynamically adjusts based on utility. However, due to recent market volatility, the current model, which increases the maximum rate by an annualized 20%, is no longer sufficient to keep up with market changes. We propose a revision of our existing interest rate model to more effectively balance the risk-reward profile for our depositors and maintain liquidity within our lending pool.

Proposal Details:

The proposed model adjusts the maximum interest rates more responsively based on the fund utilization rate. When the utilization rate reaches the kink on the interest rate model for each pool, the maximum borrowing rate will increase by 20% every 12 hours. This process continues until it reaches the maximum allowable rate of 2000%, at which point it stabilizes. Conversely, when it falls below the kink, the maximum rate will decrease by 30% every 12 hours, until it reaches the predefined minimum max rate, where it will then hold steady.

This revised model ensures that our interest rate reacts in real-time to changes in the utilization rate, modifying the interest rate curve to the prevailing market conditions.

Anticipated Benefits:

1. Market Responsive Rates: The proposed model allows interest rates to adjust quickly in response to changes in the utilization rate, thus accurately mirroring market fluctuations.
2. Balanced Supply and Demand: The dynamic adjustment strategy maintains a balanced lending pool, thereby fostering a consistently liquid market.

Example:

Consider an ETH - USDT pairing, with the kink set at a 70% utilization rate and an initial maximum interest rate of 50%. According to the proposed model:

• After 12 hours above the kink, the maximum interest rate would increase to 60%
• After 24 hours: 72%
• After 36 hours: 86.4% This continues until the maximum interest rate reaches 2,000% (the cap for the max rate), at which point it will stay at this rate.

If the utilization rate falls below 70% with an initial maximum interest rate of 100%:

• After 12 hours, the maximum interest rate would decrease to 70%
• After 24 hours, the maximum interest rate reaches the predefined minimum maximum rate for the market (50%), where it will then stay.

Upon approval of this proposal, we plan to embark on a period of testing and gradual implementation to minimize potential risks. We invite our OpenLeverage community members to participate in voting on this proposal, which represents a significant evolution of our platform.