The Interest Protocol Liquidity Program was launched in June 2022 with the goal of boosting lending and borrowing activities on the protocol. Initially, the program earmarked 10% or 10 million IPT tokens for this purpose. And in January 2023, the program underwent a redesign that shifted its focus to USDC deposits into the PSM.
While the program had some successes in the past, it has not been very effective in bringing new liquidity into the protocol lately. Moreover, the liquidity that remains in the protocol appears to be “sticky”. Therefore, it may be prudent to pause the liquidity program and restart it when the Interest Protocol can generate new interest in the protocol.
While pausing the program may result in a short-term reduction in liquidity, this would give the community and team time to continue building without emitting precious governance tokens. Based on this proposal, the liquidity program would be paused until further notice.
As of week 45 (ended May 6th), rewards have been paused for a duration of 4 weeks. Unless voted on differently, rewards will resume as planned at block 50 (around June 3rd). The IPT emission schedule for the current quarter (Q4) is provided below for reference:
Current IPT Reward Scheme
Assuming we are able to launch BPT/Aura by the end of Week 50, I fully support the decision to resume rewards as they currently stand. However, if we encounter any delays that prevent us from launching within that timeframe, I suggest extending the reward pause for an additional 2-4 weeks, depending on the amount of time needed to complete the launch successfully.
The current IPT reward design is based off changes made in Jan 2023 that favors boosting USDC deposits in the PSM. Until we get big enough to integrate with Yearn USDC deposits, incentivizing USDC deposit is still the priority for Interest Protocol at this stage.
Once we integrate with Aura, we will be the only protocol that supports lending stable against (especially volatile) BPT LP positions - That’s 1B of locked value that can be made liquid. So there will be demand, just a matter of how much.
On the other hand, acquiring USDC remains a competitive aspect for us, especially considering our current status as a small protocol. The deposit rate of USDC is likely to fluctuate significantly, influenced by borrowing demand and the available supply of USDC. As we continue to grow, we will become a more attractive venue for larger participants seeking stable and sustainable rates. However, at this stage, it’s important to acknowledge that we may not yet provide the level of stability and consistency that bigger whales may expect.
Furthermore, considering the relative novelty of the BPT oracles, it is reasonable to assume that USDC depositors bear a significant portion of the oracle risk. The potential for manipulated prices, which can be exploited to mint USDi and drain the USDC PSM. Therefore, it is justifiable to compensate USDC depositors more for assuming this additional risk.
Unless there is some specific reason to call the primary (and only) liquid backing asset USDC to USDi and the deposit, withdrawal swapping mechanism a PSM. I would encourage you to not use this term as it associates IP with Maker and makes IP seem similar to Maker when in fact the design of IP and USDi is distinctly different than Maker and DAI.
In the end here I am going to want to hear from dev team and GFX on whether they look at IP this way, and/or whether they think that using a Maker term for something in IP is a positive or a negative for the protocol generally.
I personally think history will be kinder if IP doesn’t associate itself with Maker terminology. That being said, while I am not in favor of using the term “PSM”, I don’t think it’s fine to use in casual, non-official conversation because it’s become shorthand for a hard-coded 1:1 exchange.
Pretty sure you’ll never see PSM in the official docs, though, unless a module to stabilize the USDi peg does become a thing.
