Summary
A proposal to adjust BNB’s interest rate parameters on a situational basis in the BNB Chain Core Pool.
Motivation
We have observed significant volatility in BNB borrow rates in conjunction with Binance Launchpool events, which allow users to deposit BNB to receive token rewards.
Market Analysis
The chart below shows the borrow rate for BNB in the BNB Chain Core Pool, as well as the total supplied and borrowed. The spikes in borrow rate are directly correlated with Binance Launchpool events; importantly, these spikes come at 12 a.m. UTC the day the Launchpool is opened rather than when the event is announced. For example, on April 12, 2024, BNB borrowed increased from 153K at 8:30 pm UTC to 925K at 12:30 am UTC. On average, the amount of BNB borrowed jumps from 55K to 1M in a matter of hours, an 18x increase.
This trend is exacerbated by the fact that BNB supplied on Venus decreases, likely as a result of users withdrawing their deposits to participate in the Launchpool. Both deposits and borrows stay relatively static for the duration of the Launchpool.
Additionally, we find that, since the start of March, the highest median daily borrow rate was 59.73% on April 16, the end of the OMNI campaign. The days with the highest rate standard deviation were the end of the ENA and REZ campaigns, respectively.
The kink is currently set to 80%, and we can see that the majority of Launchpool events have breached this level, creating significant rate volatility.
Overall, we find that Launchpool borrowers are relatively rate insensitive, especially given each Launchpool’s predetermined duration; all events since the start of April have been six days or shorter.
Recommendations
Given the data above, we recommend a parameter change that will better optimize this market during periods of elevated borrowing demand. We recommend increasing the multiplier to target 50% APR at the kink. The intention behind this change is multifold: first, to reduce the gap between the multiplier and jump multiplier, improving the user experience when borrowing; second, to reduce time spent above the kink by front-loading some of the increase in APR; lastly, to better incentivize supply, both reducing the amount that is withdrawn and attracting new supply.
As the kink is currently set at 80%, we do not recommend increasing it further, given that BNB is a volatile asset, and the protocol should maintain a sufficient buffer in the event of liquidations.
Following the implementation of these changes, we will closely monitor how this market reacts to the new interest rates in future launchpools to continue optimization.
Specification:
We recommend implementing the following parameters at 12am UTC the day future Launchpools begin and reverting to current parameters when the event ends.
| Asset | Chain | Pool | Multiplier (Annualized) | Jump Multiplier (Annualized) | Kink | Reserve Factor |
|---|---|---|---|---|---|---|
| WBNB | BNB Chain | Core Pool | .625 (50% APR at kink) | No Change | No Change | No Change |