Previous Proposal to adjust cursors
Summary
Morpho Labs proposes to raise the peer-to-peer index cursor α on wETH markets for both Morpho’s AaveV2 and AaveV3-ETH Optimizers.
This change will increase the P2P supply from APY and should encourage more wETH supply. In turn, increasing the percentage of borrowers receiving the peer-to-peer APY.
The proposed values for the peer-to-peer index cursors are the following:
| Market | Current α | Proposed α |
|---|---|---|
| Morpho-Aave V2 (wETH) | 47.4% | 80% |
| Morpho-Aave V3 (wETH) | 50.0% | 80% |
Context
The peer-to-peer rate proposed by the Morpho protocol is defined as r^{P2P}=α×r^B+(1−α)×r^S where r^b and r^s are the underlying pool’s borrow and supply rates. The α coefficient is called the P2P index cursor and represents the percentage of the spread where the peer-to-peer rate sits.
By raising the cursor on a given market, the P2P APY increase. This results in increased supply rates and increased borrowing costs.
Motivation
The demand for borrowing WETH on Morpho’s AaveV2 and AaveV3-ETH Optimizers is far outpacing the supplied liquidity leading to a low percentage of borrowers being matched.
To date, on Morpho-AaveV2’s Optimizer, for the wETH market
- $188,452,411 have been supplied and matched P2P while $249,032,185 have been borrowed.
- Thus, $60,579,774 (or 24.32%) is unmatched and waiting for additional wETH supply
To date, on Morpho-AaveV3’s Optimizer, for the wETH market
- $4,187,133 have been supplied and matched P2P while $25,319,319 have been borrowed.
- Thus, $21,123,203 (or 83.42%) is unmatched and waiting for additional wETH supply
Increasing the P2P cursor has two valuable properties: it would increase the P2P supply APY, creating additional incentives for wETH suppliers to deposit on Morpho. Also, it would enhance the total matched borrow volume.
If successful, the borrowers in peer-to-peer positions currently would experience a slightly higher borrowing cost but more borrow liquidity will experience Morpho’s improved rates.
Finally, Morpho Labs recently deployed a ma3WETH/wstETH composable stable pool on Balancer. The Lido DAO’s reWARDs committee has budgeted liquidity incentives for the first month to help bootstrap this pool.
Half of the liquidity provided on this pool will be directly deposited into Morpho-Aave V3 wETH’s Optimizer. Increasing the P2P index cursor would significantly increase the organic APY of this pool, making its bootstrapping more competitive overall, and cheaper to incentivize (at target APY constant). Looking at similar pools, this P2P cursor increase could help the pool reach a mature size in the range of $100-300m of TVL.
Here are the expected changes to the P2P APY as a result of the proposed changes:
| Market | Current P2P APY | Expected wETH P2P APY |
|---|---|---|
| Morpho-Aave V2 (wETH) | 2.66% | 3.27% |
| Morpho-Aave V3 (wETH) | 2.66% | 3.29% |
Methodology & specifications
For both protocols, the function setP2PIndexCursor will be triggered with the correct parameter through the ProxyAdmin after a delay of 24 hours.
Next steps
After a discussion with the community, Morpho Labs will push a proposal on Morpho’s Snapshot.