Idea: Fei Protocol Target Rate

Ideas
3

The idea of a FPTR is very good and should be moved on, in this implementation or another.

Some points:

  • Fuse is acting like a repo market so the TradFI comparison would be SOFR.
  • At MakerDAO, we have a committee for that. We try to set the target rate on DAI lending on Aave close to what we have at MakerDAO which is a bit below competition (and more stable). Target borrow rate on Aave is going to 3.5% (from 3.75% currently) even when our comparable rate ETH-A is going to 2.25%. This spread is due to the AAVE rewards.
  • Lending is also a liquidity risk and should be done within limits (hence a debt limit parameter maybe). If you provide cheap lending, people will borrow and swap to other stablecoin which will impact the peg (liquidity).
  • The common use of borrowing of FEI in Aave is to yield farm TRIBE. If you lend at 3% on Fuse it will go mainly toward this activity on Aave. Second-order effects need to be accounted for.
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