# Lower the aDOT borrow rate curve

## Summary

This referendum switches the DOT (aDOT) money-market reserve to a new interest rate strategy. The base rate drops from 1% to 0% and the rate at the 85% optimal utilization point drops from 4.5% to 2.75%. The rate at 100% utilization stays at 49.5%.

## Motivation

**The key driver behind this is the recent further reduction in DOT staking rewards - this strategy change aims to make GDOT/vDOT looping profitable at higher utilisation**. DOT borrowing on Hydration currently sits at around 40% utilization. The existing curve charges 1% before any DOT is borrowed and 2.66% at today's utilization. A flatter curve below the kink makes aDOT cheaper to borrow against the same collateral while keeping the steep slope above 85% that protects suppliers' ability to withdraw.

## Parameters

| Parameter | Current | Proposed |
|---|---|---|
| Base variable borrow rate | 1.00% | 0.00% |
| Slope 1 (0% to 85% utilization) | 3.50% | 2.75% |
| Slope 2 (85% to 100% utilization) | 45.00% | 46.75% |
| Optimal utilization | 85% | 85% |
| Borrow rate at 85% | 4.50% | 2.75% |
| Borrow rate at 100% | 49.50% | 49.50% |

At the current utilization of 40.35% the borrow APR moves from 2.66% to 1.31% and the aDOT supply APR from 0.97% to 0.47%.

## Technical details

Aave v3 interest rate strategies are immutable contracts, so the change requires a new strategy deployment and a governance call pointing the reserve at it. The new strategy is deployed at 0xD3798D35EE1C552bB7C5Ee6641118cf800Ea565A and its parameters have been verified on chain.

The call dispatches PoolConfigurator.setReserveInterestRateStrategyAddress for the DOT reserve through the Aave manager. It has been dry-run on a chopsticks fork of mainnet, where it executed successfully and emitted the expected ReserveInterestRateStrategyChanged event.

Preimage hash: 0x82ef39f8c99ff98145d7fe1fe94f45b67b2b68c03269f91f2f722a3ce09383c0

Source: https://github.com/galacticcouncil/money-market/compare/hydration...feat/dot-rate-strategy


# Lower the aDOT Borrow Rate Curve

## What is it?
- A vote to change how much interest people pay to borrow DOT (called aDOT) on Hydration.
- It makes borrowing DOT cheaper for most people.

## What changes?
- The starting interest rate goes from 1% down to 0%.
- At 85% full, the rate drops from 4.5% to 2.75%.
- At 100% full, the rate stays at 49.5% (very high, to protect lenders).

## Why do it?
- DOT staking rewards went down recently.
- Cheaper borrowing helps a strategy called GDOT/vDOT looping work better.
- Right now about 40% of DOT is borrowed, and the rate there would fall from 2.66% to 1.31%.

## How does it work?
- Aave v3 rate strategies can't be edited, so a brand new one is deployed.
- The new strategy is at address 0xD3798D35EE1C552bB7C5Ee6641118cf800Ea565A.
- It has been tested on a copy of mainnet and worked correctly.

calls

Executed

Submitted

DecisionDepositPlaced

DecisionStarted

ConfirmStarted

Confirmed

economic_parameters

Lower the aDOT borrow rate curve

root

whitelisted_caller

referendum_canceller

referendum_killer

general_admin

treasurer

spender

tipper

omnipool_admin

Origin able to dispatch a whitelisted call.

 Origin for spending very high amounts of HDX(<= 50M HDX) from the treasury as well as generally administering it.

Origin able to spend up to 2,222,222 HDX from the treasury at once.

Origin able to spend up to 50K HDX from the treasury at once.

Origin able to perform specific Omnipool-related actions.

Parameter	Current	Proposed
Base variable borrow rate	1.00%	0.00%
Slope 1 (0% to 85% utilization)	3.50%	2.75%
Slope 2 (85% to 100% utilization)	45.00%	46.75%
Optimal utilization	85%	85%
Borrow rate at 85%	4.50%	2.75%
Borrow rate at 100%	49.50%	49.50%