Following passage of a recent snapshot vote and on chain vote, Ooki is updating how interest rates are tuned on Ooki protocol. Previously interest rates for borrowers did not have a lower floor. As a result, in times of low borrowing demand, and high lending supply, the interest rates paid by borrowers would fall below 0.8%. Low borrowing rates benefitted borrowers but created uncertainty for lenders because under times of low borrowing demand, lenders returns would fall below market rates, as low as 0%, creating little incentive to lend.
In an efficient market, lower interest rates on Protocol A, would be arbitraged out and would equalize across lending protocols. In reality lending rates aren’t efficient across protocol.
In order to remedy this inefficiency, Ooki has adjusted a few of it's interest rate parameters. The purpose of this is to stabilize and improve incentive for lenders. Going forward, borrowers will not pay less than the following interest rates.
- Minimum interest rate. of 0.8% = 0.8 for stablecoins.
- Minimum interest rate of 0.1% interest for all other coins.
Once there is sufficient data to establish that Ooki's lending pools are working efficiently this limit can be removed. Market research from Ooki protocol users has also resulted in the following observations:
- Large borrowers want more volume available to take out larger loans. Many Ooki users want to borrow large amounts.
The goal is for these changes to assist in establishing a base for larger lending pools which will meet borrowers demand for larger pool volumes.
Conclusion
Ooki's new interest rate engine changes have resulted in the implementation of a minimum interest rate floor such that borrowing rates are be unable to reach below a certain threshold value regardless of the pool utilization.
The rationale for implementing a minimal borrowing interest rate is to stabilize interest rates and increase the amount of funds available for borrowing. This change would affect any pools where the borrowing rates fall below the minimum threshold. Once sufficient data is collected that pools are working efficiently the minimum borrowing rate floor can be removed.
