We are writing to propose a shift from the current one-time fees model to an interest rates model. Under this proposed model, a fixed annual interest rate would be charged on the collateral of new open positions.
Currently, it is more prudent to borrow R than to purchase it in the open market due to limited financial consequences for keeping positions indefinitely open. The motive behind this proposal is to support the stability of the R peg by increasing buying pressure for R in the open market. As part of this proposal, 50% of the earned interest would be distributed to R holders who have deposited into the R Savings Module, creating a competitive R Savings Rate (expected to range between 5-10%) in comparison to other stablecoins like sDAI. For further information on the R Savings Module proposal, please read: [Proposal] Introduction of the R Savings Module - #4 by yusa
The remaining 50% of the earned interest would be allocated to RAFT stakers once the token is live. More details about this will follow.
Key features of the interest rate model:
- Existing collateral types (stETH and rETH) will have a fixed interest rate per annum of 3.50%.
- New collateral types being considered will have a fixed interest rate per annum of 3.50% for swETH and cbETH, and 3.00% for WETH and WBTC.
- Existing borrowers will be unaffected by this transition. However, they will not be able to increase their debt position (i.e. generate more R) going forward unless they close their position and open a new one.
- Prior to the transition, the existing stETH and rETH markets will be frozen and borrowers will no longer be able to mint more R using these markets. They can, however, top up their collateral, or repay their loans.
Anticipated positive effects for the R peg
By distributing 50% of the earned interest to R holders who have deposited in the R Savings Module (together with the sDAI yield in the protocol reserve), we aim to achieve an R Savings Rate with an anticipated APR between 5-10%. This rate would surpass the DAI Savings Rate, consequently inducing buying pressure in the open market and helping the restoration of the R peg.
Please review this proposal and let us know your thoughts. If favorable, the proposal can be implemented in the next couple of weeks.