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

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

Besides for rising borrowing interest due to higher utilization, it’s the same as LYF, changes in APY are mainly due to short-term fluctuations in yield farming APY, CAKE price, and trading fees. It’s not a fixed income account.

As for why it’s different than the backtest results, as across all DeFi, the yields on the DEXs are dropping over time, because they’re too profitable or unsustainable and more liquidity is entering.

Changing the performance fees on lending will not effectively decrease borrowing interest. What you just suggested would move a 5% lending APR to something like 5.4% and have no direct effect on utilization.

Besides, lending APY can only be evaluated in the context of what are the competitive rates on the market. For example, if 5% is the highest rate on the market, what will increasing it to 5.4 do?

Borrowing interest is determined by the interest-rate model. Leveraged Yield Farming Parameters - Alpaca Finance

Changing the interest-rate model is what this thread is about, which is an immediately effective approach.

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Changing utilization isn’t something we can do well. Specific lending pools have low utilization usually because there is a lack of earning opportunities on them.

I do know that one type is market neutral and that it earns in trade volume, however the other strategy may keep the long exposure to the asset for longer (at 3x) (cause one position will diminish while the other one increases) and thus earning more with price volatility (if correctly rebalanced) aswell as keep the farming fees as high as possible because of the leverage
I know it is not neutral but it is a long strategy with lower borrowing fees from borrowing and higher stability of leverage
The example exposure would be inverted

  • Added collateral: $4000
  • Total position value: $12000 (borrowed 8000 BUSD)
    Total Exposures:
  • BNB: long 4500 - short 500 = long 4000 (effectively long with 2.5x leverage)
  • BUSD: long 1500 - short 1500 = 0 (don’t care much)

But if the price moves up or down the leverage factor do not change that much

I think most people as bullish in criptos, so a auto-balancing long exposure vault would be excelent (and it will earn similar APYs from the market neutral one)

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Please don’t derail the thread. If you want to suggest a new product then you should do it in a new thread.

Oh ok, it was an idea to divert people to borrow different assets, but sure, I can create another topic

I fully support this proposal and I agree it needs to happen asap.

And I also suggest:

  1. Create a mechanism to adjust the interest curve regularly, taking into account the farming rewards, trading fees, etc. for each coin.

  2. Move all the Alpaca rewards from the supply side to the demand side to improve capital efficiency. We should incentivize people to borrow, which is most important for Alpaca.


which is also the reason why it doesn’t make sense to use the same parameters for every pool. In the case of BTC, a 2.6% borrowing fee is paid for 0.16% of the lending apy. Even if it was reduced to 0% most wouldn’t even notice it.

But let’s say the borrowing rate was changed to 4% at 60% utilization and the utilization increased to 25% (btc-busd vault?) we would only be paying 1.6% for a lending rate of 0.27% (a 70% increase)

What exactly makes it difficult to change these parameters? it has been done for tomb and this proposal seems to suggest it is possible to alter it after creation. Of course, it should be done every other day but maybe quarterly evaluate the performance of each pool and re-optimize them if needed?

I think someone just liquidated or put a lot of money into the lending…
It went from 60+% to 46%
So healthy levels again
I may agree with something like m=1/4 until 80% (to keep the same 20%) and then from 80+ keeping our high interest
It may lead to a lesser APY for lenders, but may help with borrow fees in the short term
I don’t mind also increasing the high fees from 150% to 1000% if needed, to increase lending incentives.

There’s nothing wrong with the idea of regularly evaluating the interest rate models. The product team should be doing this.

However, I didn’t say we can’t change the interest rate model, I said we can’t change utilization well.

You’re still assuming modifying the interest rate model can, by itself, effectively change utilization, which it can’t. If we raise the interest rate on BTCB, why would that lead to more people borrowing BTCB? If anything, it would be the opposite.

The reason we can raise utilization through the method in the opening message of this thread is because we can open Automated Vaults on BNB-USDT, which creates borrowing demand. Even if we opened an Automated Vault on a BTCB pair, the TVL on them is so low(37Mn on BTCB-USDT) that we might not even be able to open 1 20Mn TVL vault before the rewards were diluted so much, and utilization increased, that it became unprofitable to add any more.

Again, it comes down to a lack of earning opportunities on these unpopular tokens. The rewards have to come from somewhere.

As the opening message said, it will not lead to a lower APY for lenders. Higher utilization will increase the APY earned by lenders.


Current rates will be put back if it doesnt work, could a timeframe be added and the metrics to judge if it works / doesn’t work? So when the change is a success and a keeper and when a fail and changed back to the old slope.

So define clear success / fail criteria and a time period after which the adjustment will be evaluated.

Hello everyone.

With the successful launch of the 2nd 8x BNB-USDT Market Neutral pool. We have shown that an interest model adjustment could work to benefit both lenders and farmers to achieve a more efficient outcome.

We have drafted a more comprehensive plan for interest model adjustment here: [For Discussion] A plan for interest model adjustment

Please discuss / provide feedback in the new thread.

Thanks all.