[PIP-044] Decrease IR 8% on LSTs and Raise Minimum Collateral Ratio to 150% for all supported assets

DAO Proposals
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Summary

This publication proposes revising the Debt Interest Rate from 10% to 8% for the LST troves and raise the MCR for all assets to 150%

Abstract

We propose to decrease the Debt Interest Rate parameter to 8% in order to boost utilization and minting of new mkUSD against supported LST collateral. To offset a possible variation in mkUSD peg and to protect users considering the volatility of the market, MCR will be set at 150%.

Motivation

With its governance mechanism, Prisma needs to adapt the rates to market condition through DAO proposals. Considering the rates charged currently by similar protocols, setting rates at 8% could benefit Prisma TVL and mkUSD debt.

As additional minting could have an impact on peg and indirectly redemption mechanism, and more importantly giving the recent volatility the crypto market is experiencing, we believe that a MCR set at 150% for all assets could be beneficial to Prisma users (Almost all v2 vaults have already a CR>150%).

Specification

Parameter Current Value Proposed Value
Debt Interest Rate LSTs 10% 8%
MCR (LSTs+LRTs) 110% to 130% 150%

Next steps

Feedback are important, please comment. If a consensus is reached, the proposal will go next on a Snapshot vote.

4 Likes
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Good proposal bringing Prisma in line with market conditions.

It would also be great to attach a marketing plan if the proposal passes. Referring to the previous proposal of adding ETHx as collateral, which was well planned and executed, response from the market could be considered suboptimal.

It’s important to engage with the market and get the word out.

1 Like
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That’s a 50% liquidation penalty? Am I misunderstanding or is that completely insane?

2 Likes
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What do you mean? Could you be more specific on your comment?

1 Like
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Perhaps I’m misunderstanding, but let’s say I have $200 in collateral, and borrow $100 against it.

Previously, I would’ve been liquidated once collateral value hits $110 or $120, against my $100 of borrow, for a 10% or 20% penalty.

At 150% MCR, that means that when my collateral hits $150, I get liquidated to repay $100 of borrow, and I take an instant loss of $50, or 50% penalty?

6

More 33% as your collateral is worth $150. But worth to note 2 things:

  • There is zero vaults below 150% in the v2 versions
  • Liquidation events are very rare
1 Like
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I was calculating the percentage as a function of the borrowed amount, but agree.

Take your points.

There are no vaults below 150% because people manage their CRs with a good buffer, and we’ve had ETH rally quite a bit since the last time there was a large amount of borrowing activity on Prisma.

Liquidation events are really rare, because people manage their CRs well.

This change makes Prisma significantly less capital efficient and extremely punitive in event of a liquidation. Makes it very difficult for me to justify using Prisma versus Aave or other CDP protocols.