Interest Rate Instantiation & SILK Redemption Threshold

Shade's Products
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Greetings community,

Currently we find ourselves in a similar situation to October of 2023 where SILK was under peg due to interest rate arbitrage. Essentially, large whales have realized they can take out a 0% interest loan, borrow SILK, sell it for USDC (with slow slippage) and then go and farm using USDC elsewhere (netting yields 5%>). In essence, SILK holders are paying the price for the lack of monetization of the value of SILK within borrowing.

To resolve this gap in incentives, and to create an economic incentive for large positions to consistently repurchase SILK (especially when at a discount) the ShadeDAO is moving to add in 1% interest rates on all open vaults.

In addition to this, we are instantiating a 10% depeg redemption threshold, whereby if SILK is underpeg by more than 10% the ShadeDAO will tap into the overcollateralization of various vaults (specifically USDC & USDT) to arb SILK back to its target peg.

In the absence of a greater than 10% depeg, if SILK is in the 3% to 10% underpeg range, the interest rates on the ShadeLend vaults will increase by 0.5% every 7 days until peg is restored. The ShadeDAO reserves the right to trigger redemptions sooner than 10% if needed, but this mechanism is strong enough that the ShadeDAO prefers to resolve the disparity with interest rates (the traditional way that most CDP style stablecoins use to resolve this scenario).

Interest rate schedule:
4/9 — 1.00%
4/16 — 1.50%
4/23 — 2.00%
4/30 — 2.50%
5/7 — 3.00%
5/14 — 3.50%
5/21 — 4.00%
5/28 — 4.50%
6/4 — 5.00%

etc. etc.

Once the SILK peg has been restored, interest rates will decrease by 0.5% every 7 days until restored to the target interest rate of 1%.

To learn more about how the stability of the system works, we encourage users to reference the following source material:

We look forward to fully resolving this market dislocation & continuing to create a more stable & trusted environment for SILK holders.

-ShadeDAO Core Contributors

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Basic question:
Where will the Silk obtained from Tax be sent and how will it be handled?

Basically, there are currently 2 routes:

  1. Connect with SHD and create a SILK/SHD LP
  2. Depositing SILK into Earn ( to increase SILK security) and in case of overpeg selling SILK afterwards
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Currently, the fee collector address for ShadeLend is pointed towards the fee collector address that is also accruing fees from ShadeSwap which is being used for SHD buybacks on a weekly basis

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Okay, would it be possible to modify my suggestion 4) from

That is, instead of tokens like stATOM, wBTC, … buy SILK and pair it with SHD ( if the other tokens will manage to pay SHD 5% staking )?

If I’m not mistaken 1% = approx. 1000$/w income from Vaults

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Why is this the direction we are going in? Silk has to be minted and there is a fee taken from the mint. People see a value in silk and use the efficiency of Silk to Defi in locations other than Shade. Then we should either: (1) make Silk and privacy use available outside of Shade or (2) bring those or similar products into shade. Not charge people extra to use Silk.
Rather than trying to curb value leakage, this seems to be a pretty transparent effort to introduce and ramp up interest rates on vault loans (which isn’t bad), but using this seems disingenuous. Especially when we have better solutions.
Also Silk’s market share isn’t so high that we can start harassing the user base.
Push Perpetuals!

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The 4/16 interest rate hike to 1.50% has been instantiated.

Peg dislocation sits at 3.2% down from 6.4%. Next rate hike of 0.5% to 2% will be on 4/23.

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