Author(s): @TigrisOfGaul

Summary

This proposal seeks to adjust protocol parameters to enable higher maximum leverage and increase token utilization across all lending pools.

Abstract

If adopted, this proposal sets out a strategy to adjust the parameters that determine the level of sufficient collateralization, maximum leverage, and lending and borrowing rates in the Tarot Protocol. These parameter adjustments will decrease the cost of borrowing, enable higher maximum leverage without liquidation, decrease the penalty borrowers pay when liquidated, and increase utilization in lending pools.

Motivation

Since its inception, the Tarot Protocol has chosen extremely conservative risk parameters for things like the liquidation incentive (currently 4% for all lending pools) and safety margin (currently 250% for most lending pools).

We believe the performance and speed of Fantom network transactions allows the protocol to offer a lower liquidation incentive across all lending pools and still incentivize liquidators to perform timely liquidations.

Lending pools with more established tokens and/or relatively low pair volatility can support a lower safety margin (and thus, higher maximum leverage) and still be conservative compared to other major protocols. The increase of the adjust speeds from their current levels allows borrow and supply rates to be more responsive to sudden changes in supply and demand. Finally, the increase of the kink utilization rates for lending pools with already significant liquidity will incentivize more borrowing activity and increase the utilization of supplied tokens in the protocol.

These parameter adjustments aim to increase borrowing activity across lending pools, which incentivizes lenders to supply more tokens, and ultimately increases the fees accrued to the protocol.

Benefits of parameter adjustment:

• Enables more responsive rates
• Increases lending pool utilization
• Incentivizes more borrowing activity

Specification

The adjustments we propose are:

Adjust speed - Enables more responsive rates

The adjustment speed parameter for all pools except the FTM-TAROT, FTM-TOMB, and FTM-TSHARE pools will be increased from 5% to 17.28% per day.

The adjustment speed parameter for the FTM-TAROT, FTM-TOMB, and FTM-TSHARE pools will remain at 43.20% per day.

Kink utilization rate - Increases pool utilization

The kink utilization rate parameter for the following pools will be increased from 70% to 80%:

• FTM-TOMB
• BTC-ETH
• USDC-fUSDT
• SPELL-sSPELL
• USDC-MAI
• YFI-WOOFY
• fUSDT-BUSD

The kink utilization rate parameter for the remaining pools will be increased from 70% to 75%.

Liquidation incentive - Incentivizes more borrowing

The liquidation incentive parameter for all pools will be decreased from 4% to 2%.

Safety margin - Incentivizes more borrowing

The safety margin parameter for the following pools will be decreased from 250% to 150%:

• BTC-ETH
• SPELL-sSPELL
• USDC-MAI

The safety margin parameter for the following pools will be decreased from 250% to 175%:

• FTM-TOMB
• FTM-BTC
• USDC-FTM
• fUSDT-FTM
• CRV-FTM
• FTM-ETH
• FTM-BNB
• FTM-DAI
• FTM-MIM
• FTM-LINK
• YFI-ETH
• FTM-YFI
• FTM-SUSHI
• FTM-ANY

The safety margin parameter for the following pools will be decreased from 250% to 200%:

• FTM-TAROT
• FTM-TSHARE
• FTM-BOO
• FTM-ICE
• fUSDT-SPELL
• FTM-SPELL
• FTM-SPIRIT
• MIM-wMEMO
• SPIRIT-DAI
• FTM-SHADE
• FTM-JOE
• FTM-MAI

The safety margin parameter for the following pools will remain at 150%:

• USDC-fUSDT
• YFI-WOOFY
• fUSDT-BUSD