Profitability Assessments
Last updated
Last updated
Treehouse will implement an internal rate to manage the utilization rate of borrowing ETH. This ensures sustainable borrowing costs, and addresses potential challenges arising from fluctuations in borrowing demands on lending platforms.
Internal Utilization Rate - Upper Bound
This rate serves as a precautionary threshold, designed to preemptively address situations where the lending platform’s ETH vault utilization rate approaches levels that might lead to unfavorable borrowing costs.
When the actual utilization rate on the lending platform exceeds the upper bound of the protocol’s Internal Utilization Rate, Treehouse will rebalance to mitigate any potential impact, thereby safeguarding tETH’s strategy.
The protocol monitors the utilization rate of ETH vaults continuously. For Aave, triggers are activated when the Internal Utilization Rate Upper Bound (>89%) is crossed and sustained above the threshold for more than two consecutive days. This approach aims to differentiate between temporary fluctuations and stable trends that warrant the protocol’s intervention.
Treehouse continuously calculates the necessary amount of LST that must be converted into ETH to keep the utilization rate within the predetermined bounds.
Despite this, if the utilization rate increases further during the LST to ETH conversion window (e.g, from 90% to 91%), the protocol recalculates and prepares additional LSTs for conversion. This ensures the repayment amount always adjusts the utilization rate towards the internal optimal level.
Note: The specified values in the doc are currently arbitrary and subject to governance determination in the future.
If demand for interest rate arbitrage strategies significantly outpaces the available opportunities, the protocol will diversify excess capital to the highest-yielding approved LSTs.
