Introducing Leverage Interest Rate to Incentivize pBTC Stability

The Party Parrot
2 min readJul 1, 2022

The Parrot protocol has been using the “Leverage Interest Rate” on PAI and pSOL vaults to help stabilize the price peg. Going forward, the same mechanism will be deployed to restore the balance of interests between pBTC borrowers and pBTC liquidity providers.

  • The pBTC interest rate will be determined by the imbalance ratio of pBTC:renBTC in the stable swap markets
  • A pBTC stable vault may have liquidation events if accrued interest dips the collateral ratio below 100.5%
  • The leverage interest rate will start on July 4th, 2022

The formula to determine the leverage interest rate:

MAX(leverageCoefficient * (pBTCReserve — renBTCReserve) / renBTCReserve, 0)

The leverageCoefficient will be initialized to 7, and may be adjusted as necessary.

The pBTCReserve and SOLReserve will be taken into consideration of the ask/bid imbalances in the following DEXes:

  • Saber renBTC:pBTC
  • Serum renBTC:pBTC

Since SERUM is an orderbook, we need to consider how the ask/bid orders are placed when accounting for renBTCReserve and pBTCReserve:

  • pBTC ask orders <= 0.995 SOL (selling 1 pBTC for 0.995 renBTC) will be considered in pBTCReserve
  • pBTC bid orders <= 1.005 SOL (selling 1 renBTC for 1.005 pBTC) will be considered in renBTCReserve

pBTC:renBTC SRM Market: 2ZXno5u6RiEAj4Gu9pW2kKxKwbVR4ApB2iDqpGc93qb3

NOTA BENE: Use Serum if you are a large pBTC holder

As long as your ask price is below (or equal) to 0.995 renBTC, it will influence the leverage interest rate.

As the pBTC leverage unwinds, Jupiter will route leverage unwind flow into the Serum orderbook and fill your ask orders.

Using leverage interests to create permanent liquidity

To bolster the liquidity depth of pBTC and pSOL, the protocol will match the collected leverage interest 1:1 to build up permanent liquidity.

For example, if $10k worth of pBTC is collected as interest, the treasury will match it with $10k worth of renBTC to form renBTC:pBTC LP.

Similarly, if $10k worth of pSOL leverage interest is collected, the treasury will match $10k worth of SOL to form permanent pSOL:SOL liquidity.

The team will start with this approach, and continue to explore ways to create better liquidity for the pSOL and pBTC markets.