Voting against the configuration as I see this is game-theoretically suboptimal.
In a limited capacity outcome, all else equal, holders benefit in backing appreciation. Borrowers, however, benefit from both backing appreciation AND returns on borrowed capital (dual value accrual). This splits community into "haves" and "have-nots"; since interest is collected on repayment & Cooler has built-in roll functionality, this inequality can be continued in perpetuity. Here is how I see the payoff matrix between borrowers and holders:
In $69M cap + 0.5% interest rate scenario, borrowers benefit bigly (3), holders lose out on $69M capital allocation (1).
In $69M + 3.3% interest rate scenario, deal is less sweet for borrowers (2) but still competitive to any other lending market. They also benefit in backing increase from 3.3% interest, as do holders (2). There is a way to further optimize this in favor of holders which I’ll share below.
In full capacity + 0.5% scenario, facility is open to all so everyone has same payoff (3,3)
In full capacity + 3.3% scenario, higher interest rates are less attractive to borrowers but benefit holders (2,2).
The current configuration is not a Nash equilibrium (as the holder and borrower have a better payoff state). I don’t see how the protocol can continue to function under this fundamental dynamic of unfairness.
So what’s the solution? Full capacity is one solution that solves this unfairness. However, the implications are not fully thought out and this will fundamentally change OHM’s intended use case from the direction we are headed now.
Another solution can be a variation of borrowers paying holders. In this case, value transfer flows from borrowers directly to holders rather than to the protocol. This removes the dual value accrual property and creates incentives for holders.
Other solutions probably exist that get us out of this sub-optimal state.
I’m interested in exploring all of these pathways but think prudence and careful consideration must be considered. I will go on record to say that the artificial urgency created by the community for this proposal is impulsive and reckless.
To address remaining parameters:
I care less about LTV as it’s useful insofar it’s accretive to protocol & remaining backers. A low LTV balances lender risk and borrower appetite.
I’m for shorter tenors to increase observation frequency and flush non-believers as soon as possible. A smaller aligned community is better than a large non-aligned community.
I want to find ways to realize revenue upfront. Value should accrue instantly rather than taking on time risk.
