I think the protocol should reassess the existing liquidity incentives setup. As it currently stands, we have borrow rewards to reduce the cost of borrowing and to distribute IPT to the protocol’s users. Additionally, we have the ETH-USDi pool to supplement the need for USDi redemptions. The initial thought behind the borrower rewards was that by increasing the borrowing rate, the supply rate would also increase to sufficiently attract lenders. Since the new interest rate curve was introduced in proposal 12, the protocol’s deposit rate has been trending down and currently sits at 5.25% with a 7-day average of 5.10%.
I think we need to find ways to increase the available liquidity in Interest Protocol, and one of the best ways to do so would be to incentivize converting USDC to USDi and holding that USDi . If the protocol were to end its ETH-USDi incentivizes, it could repurpose the 42,734 IPT/week toward USDi holders. If we use the current price of $0.14, then that would be about $300k annualized. If we target a 10% yield rate with 4% already covered, then it should incentivize about $5m of additional USDC in the system.
However, some borrowers hold their borrowed USDi, so they could double dip on the incentives. While the immediate thought could be not to include those addresses from the count, that isn’t a feasible solution. Instead, I propose we lower the borrower rewards by 1/3 from 85,469 IPT to 56,979 IPT and increase the supply rewards from 42,734 IPT to 71,223 IPT. The 25% higher supply rewards versus borrow rewards should shift the protocol’s liquidity profile to be more beneficial for both lenders and borrowers.
I would love to hear what other IPT holders think of this proposed revamp of IP rewards.