TL;DR

• Problem: The liquidity in the lending market is too low so that it does not allow for efficient borrowing or lending
• It is proposed to create initial liquidity for lending by incentivizing the supply of USDT and KSM for 1 month with a total of 3,000 KINT (1,500 for each market)
• It is expected to raise around $80,000 liquidity for each of the markets with an expected APY of 15%

Problem

The lending market on Kintsugi currently faces the typical ‘chicken-egg’ problem in that there is no sufficient liquidity to borrow USDT or KSM at size without increasing the utilization to level where the interest rates become too high (above 90% utilization the interest rates increases very fast).

Simultaneously, while there is low borrowing activities, the yield for supplying USDT or KSM is comparably low so that lender find more profitable opportunities on other lending protocols.

Solution

To overcome this issue, it is suggested to bootstrap initial liquidity in the lending market by incentivizing the supply of USDT and KSM for one month. By then, there should be enough liquidity to allow for efficient borrowing of these tokens such that the interest rates can adjust by market forces.

Therefore, this proposal seeks to incentivize the supply of USDT and KSM markets with a total of 3,000 KINT for one month.

Comparable rates for USDT and KSM on other protocols are

Expected result

Assuming a conservatively high APY of 15% for USDT and KSM to attract sufficient liquidity, distributing the rewards equally between the two markets for one month would result in a target liquidity of $80,000 for both market.