Summary
This proposal seeks to increase the daily borrow limits for all six FiRM Stable LP Markets from the current 250,000 DOLA to 1,000,000 DOLA per market. The adjustment aims to accommodate growing borrower demand, enhance liquidity, and support the sustainable growth of the FiRM protocol.
Background
Inverse Finance’s FiRM protocol offers fixed-rate lending services across multiple Stable LP Markets. Since their inception, these six live LP markets have demonstrated robust activity and consistent utilization of their daily borrow limits. The existing daily borrow limit of 250,000 DOLA has frequently been reached or closely approached, indicating strong and sustained market demand. Borrowers are increasingly seeking larger loan amounts, and the current limits may hinder their ability to fully participate and benefit from the protocol’s offerings.
Increasing the borrow limits aligns with FiRM’s objective to expand its services and cater to a broader user base. By enhancing the daily borrow limits, the protocol can improve user experience by allowing borrowers to access larger loans without delays or limitations. This adjustment is also expected to increase protocol revenue, as higher loan amounts will lead to increased interest income. Moreover, raising the borrow limits will strengthen FiRM’s market position, positioning it as a more competitive player in the DeFi lending space and attracting more users to the platform.
Risk Assessment
Revised Risk Assessment of Stable LP FiRM Markets (November '24)
The RWG’s latest assessment of the markets, which can be accessed here, supports raising the daily borrow limits for each of the LP markets, based on analyses that incorporate liquidity metrics, market utilization, and stability considerations. Liquidity depths in the underlying DOLA, FRAX, crvUSD, and pyUSD pools are sufficient to handle higher borrowing levels without causing liquidity strain. Since the launch of these LP Markets, observed activity has shown consistent utilization at current limits, high engagement, and zero liquidation events. The low volatility profile of stablecoin pairs further reduces liquidation risk, and FiRM’s liquidation mechanisms and incentives (set at 5%) are structured to ensure cost-effective and prompt liquidation responses if needed, especially as MEVs are incentivized through the upcoming Liquidator Grant Program.
Moving daily borrow limits from 250,000 to 1,000,000 DOLA per market aligns with FiRM’s growth objectives by addressing increased borrower demand without altering core risk parameters. The proposal excludes changes to collateral factors, liquidation thresholds, and supply ceilings, as these settings remain well-suited to the protocol’s risk management strategy. Ongoing monitoring of key metrics will ensure FiRM’s capacity to adjust to any shifts in liquidity, utilization, or collateral health, ensuring that the protocol remains secure and responsive to market evolution.
On-Chain Actions
- Set Daily Borrow Limit for DOLA/crvUSD LP Convex Market to 1,000,000 DOLA
- Set Daily Borrow Limit for DOLA/crvUSD LP Yearn Market to 1,000,000 DOLA
- Set Daily Borrow Limit for DOLA/FRAXpyUSD LP Convex Market to 1,000,000 DOLA
- Set Daily Borrow Limit for DOLA/FRAXpyUSD LP Yearn Market to 1,000,000 DOLA
- Set Daily Borrow Limit for DOLA/FRAXBP LP Convex Market to 1,000,000 DOLA
- Set Daily Borrow Limit for DOLA/FRAXBP LP Yearn Market to 1,000,000 DOLA