Research Summary
The report delves into the interest rate optimization feature introduced by Gauntlet in November 2022, specifically reviewing its proposed adjustments for Venus in Q1 2023. This optimization primarily aims to manage risks associated with asset utilization, while its secondary objective is to amass income for protocol reserves. The findings reveal that optimizing the interest rate for BNB on Venus was responsible for the lion’s share of Q1 net revenue, accumulating over $2M in additional reserves by May 2023.
Actionable Insights
- Mitigating Risk: Interest rates can mitigate utilization risk by incentivizing borrowers to repay loans and suppliers to increase supply, thus decreasing utilization and mitigating risk.
- Building Reserves: Interest rates can be used to harvest increased reserves when specific conditions arise, serving as a rainy day fund for protocols and reducing reliance on native token treasuries.
- Impact on Venus: Borrowing of BNB tends to spike around Binance Launchpad events. Interest rate adjustments for BNB contributed an additional $2M to Venus reserves as of May 2023.
- Future Considerations: Continuous monitoring and adjustments of interest rates are essential for risk management and revenue optimization. Further changes may be proposed based on future utilization spikes.
