[For Discussion] Adjusting borrowing interest slope for BNB and USDT


With the launch of the Automated Vault, we have seen a strong interest from the community in the new product with TVL now 40+ Mn USD, of which, ~33 Mn are from borrowing.

The increase in borrowings pushed up the BNB and USDT lending pools’ utilization, resulting in higher borrowing interest rate. Combining this with a slight dilution to the BNB-USDT pool’s yield (from higher TVL) resulted in a sharp drop in Automated Vault’s yield.

The current system is not sustainable and will likely cause Automated Vault farmers to close their positions over time due to low yield. It would also not allow us to add any additional capacity to the BNB-USDT Automated Vaults.

Proposed Implementation:

We would like to re-optimize the interest model for BNB and USDT pools. We will move the borrowing slope2 out to the right (e.g., 60% → 80%) such that the borrowing rate is a bit lower at each utilization.

While at first glance, this might seem like the lenders will lose out, by lowering borrowing rate. However our analysis shows that this adjustment ends up being a win-win for both lenders and borrowers (and Alpaca Platform) because of higher amount of borrowing and utilization. Lenders will earn more as well as Automated Vault farmers. To put it another way, the system achieves a higher capital efficiency.

We would like to move fast on this initiative and plan to add a second 8x vault on BNB-USDT on Tuesday (29th March.) Thus, the core team plan to implement this adjustment around 10 AM UTC on 29th March when the second 8x pool goes live

You can view our analysis here: Automated Vault & New interest model - Google Sheets

If it doesn’t work as expected, we will reset it back / re-adjust the borrowing interest to prior parameters.

In the meantime, feel free to discuss / provide feedback on this implementation.


We will have to wait and see how this goes for the time being.

It may help, but the true problem is we don’t have enough USDT.
It’s hard to solve. Especially everything is based on lending.

Instead of opening another BNB-USDT auto vault, it might be easier to open up a BNB-BUSD vault for the time being before this proposal is passed.

With that being said, I do agree to shifting the slope slightly to increase utilization before the interest rates increase could be a good idea with more auto vaults opening in the future.


Well, As pointed by @cryptoeater , our problem is overall stable supply, and as far as I understood from the explanation and from the spreadsheet, the more the stable lending supply, the better the game for everyone (even for the lenders since the higher the automated vaults yield, more people will invest in it and then more stable would be borrowed, maintaining the yield or even making it better by the time).

So, together wit the adjustment proposed, one that I agree with for now, it is the case to focus on how we can attract more stables. I see no other solution than a broader adoption of our protocol so people would come to graze here with their assets. So it seems we will be stuck for while on this unbalance problem until we get more traction with TVL.

Lets vote on this, good to see we’re moving ahead, thx guys!


I am also hurt on the ALPACA price action, but coming from 25 years ate the traditional Fin. Mkt and seeing this new world in early development stage, IMHO, I do think that our protocol has a huge value to be unlocked, but there is more grinding and steps to it than my anxious wallet would like to see, so we should keep delivering the innovation that we all need on finance!

I suggest using a dynamic approach on the 15% performance fee if the vault is just not performing as planned. For example, it may help the vault’s APY to be increased by 5% to cater to further similar lending rate adjustments.

Open the BUSD-BNB vault can help to release the borrowing pressure on USDT. Also, as mentioned by others, the TUSD lending pool has a very little utilization rate compared with other stablecoin pools.

1.I think what we should do is increase the use age of TUSD USDC and BUSD. These 3 stable coin usage is much more lower that USDT.
2.Also I think it is a great way for us to combine with EPS and explore the application of AUSD.

Of course changing the borrow curve would increase our platform capital efficiency so I’m favorable about that.

My doubt is, will changing the borrowing interests curve just postpone the problem?

Also, will the opening of a second av pool on the same pair bring the utilization rate to 80% reducing back the AVs apr as it is now?

I think we should first add more options in more coins and pools even if they are x3 instead of x8, this will dilute the necessity for such high demand in USDT
The thing is we could even make a lending to balance stablecoins lending → like borrow UST (or any other stablecoin for that matter) but convert it to any other coin that is being used
That would be a far better solution instead of a plug hole.
It would also dilute risk for the lenders and I think would be a win win scenario.
Btw for me lower rentability in a x8 leverage is normal since borrowing will be more expensive, maybe something like a x5 would be more realistic (since our lending pool is not that massive yet)
I would even suggest removing any limits for the pools so that if they are more requested the lending would have higher payments incurring more interest from other players to park their money in the platform
Increasing the threshold is the same as saying: “Hey park your money here but when you are really making money we will reduce your rentability”

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Also having 2 types of borrowing strategies would help minimize usage
1 with 75% stablecoin and 25% riskcoin
1 with 75% riskcoin and 25% stablecoin
They should have similar APYs if they are with similar borrowing fees.

Btw by supply and demand rules, usually the APY in both positions will be similar, because why would anyone use an automated vault with less apy? and then decreasing the rentability of higher leverage ones…

What exactly is causing the low apy compared to the backtesting results? the borrowing rate doesn’t seem that particularly high (below 60%). Wasn’t the backtesting done with 20%? Is it purely due to the increase in TVL and the corresponding drop in farming rewards?

With these automated vaults, it requires some time to compensate for the entry fees (swapping) and is thus riskier than the lending pools. Opening a second bnb-usdt based vault will only further dilute the rewards. Moving the slope from 60 to 75 and 80 also reduces the margin between what’s profitable and not as a small increase in utilization can ramp up the borrowing fees and make positions unprofitable.

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Borrowing APR has increased a lot, due to higher utilization.

It was around 11% before the launch of Automated Vault. Now it’s at ~17%.

Just had another thought…
Why the performance fee for lending is that high? 19% is a bit much imho
If we put it around 10% (5% for team, 5% for burns) would increase lending rewards and thus decrease the borrow fees (because it will increase the TVL for pools faster)
To me the protocol should be more focused in making money in the farming pools and not the lending, since lending pools are what lets the protocol have high APYs

And I do know that I sound like a lender for saying to increase lending oportunities… but sorry, I am a farmer :sweat_smile:

Maybe we can also re-optimize some of the other lending pools ? BTC and ETH for example have always had extremely low utilization. Change it to something around 5%(slightly above market) at 60% to make it more attractive for farmers and vaults in the future (i.e., make use the capital we have)


In general, the underlying yields in many pools has come down significantly since last year and 20% borrowing rate might is not optimal anymore - there are very few pools with yield > 20%.

I will do an analysis and propose a more comprehensive adjustment for the interest model.

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We don’t control DEX rewards on the pairs so there’s nothing we can do about TUSD or any other tokens. That’s why we don’t add lending assets if they don’t have a lot of DEX pairs that produce rewards.

Ellipsis’ APY is too low to support leverage. Also, please see my post above this one.

You should read about how different setups create different exposure. https://docs.alpacafinance.org/alpaca-academy/lesson-1-alpaca-finances-unique-use-case-shorting-at-a-profit