The Arbitrum DeFi Dollar project introduces two key metrics to the Arbitrum ecosystem: the Arbitrum DeFi Dollar Borrow Rate (ADDBR) and the Arbitrum DeFi Dollar Supply Rate (ADDSR). These indexes are designed to provide a consolidated view of stablecoin lending and borrowing activities across the Arbitrum network.
In the rapidly evolving world of decentralized finance (DeFi), understanding the true cost of dollar denominated borrowing and the potential returns on lending can be challenging, especially when considering the many protocols and stablecoins in use. The Arbitrum DeFi Dollar Rates aim to address this challenge by aggregating data from various major lending platforms and stablecoins, offering users a single, reliable reference point for the Arbitrum stablecoin ecosystem.
By weighing rates by the outstanding supply and borrow in each protocol and for each stablecoin, the DDBR and SR provide a more accurate representation of the overall market conditions than simple point in time estimates for single lending market - stablecoin pairs. This approach ensures that larger, more influential protocols and widely-used stablecoins have a proportionate impact on the final rates.
The DeFi Dollar Rates will offer comprehensive insights into on-chain borrow and supply rates, as well as active supply and borrows for USD stablecoins. This information aims to drive informed decision-making for lenders, borrowers, and protocols within the Arbitrum ecosystem.
The Arbitrum DeFi Dollar rates serve multiple purposes within the DeFi ecosystem:
Market Insight:
The Arbitrum DeFi Dollar dashboard offers a user-friendly interface for individuals, enabling them to explore and understand the stablecoin ecosystem in a simplified manner. This can help lower barriers to entry, making DeFi more accessible to a broader audience.
The DDBR and SR offer a quick, at-a-glance view of the current state of stablecoin lending and borrowing on Arbitrum. This can help users understand overall market trends and conditions.
Researchers and analysts can use the historical data of these rates to study trends, correlations with other economic factors, and the overall health of the Arbitrum DeFi ecosystem.
Benchmark for Protocols & DAOs:
Protocols can use the DeFi Dollar indexes to monitor market conditions, analyze competitive dynamics, and design more attractive products. If a protocol's rates significantly deviate from the ADDBR or SR, it might indicate a need to adjust their parameters or incentives.
For DAOs and governance communities managing stablecoin-related protocols, these indexes can provide key metrics to guide decisions on interest rates, liquidity incentives, and reserve management. The ability to track market-wide borrowing and supply trends helps governance participants craft proposals that align with current market conditions.
User Decision-Making:
Risk Assessment: Significant changes in the DDBR or DDSR over time can indicate shifting market conditions or risk levels in the Arbitrum ecosystem.
Cross-Chain Comparison: While focused on Arbitrum, these rates can be compared with similar metrics on other chains to assess Arbitrum's competitiveness in the broader DeFi landscape.
Reflexive Products: In the future, these rates could potentially serve as the basis for automated risk management via yield oracles based interest models as well as derivative products, such as interest rate swaps or futures contracts based on the Arbitrum DeFi markets.
By providing these standardized, aggregate measures, the Arbitrum DeFi Dollar rates aim to increase transparency, facilitate better decision-making, and ultimately contribute to the growth and efficiency of the Arbitrum DeFi ecosystem.
The Arbitrum DeFi Dollar Rates (ADDBR & ADDSR) aggregate the borrowing cost and supply earnings in lending protocols and savings primitives across dollar-pegged stablecoins and protocols.
The ADDBR is calculated as the debt-weighted average borrow rate of active stablecoin borrowing positions across included protocols and stablecoins:
$$ ADDBR = \frac{Σ_{i,j} \text{BR}{i,j} * \text{TB}{i,j}}{Σ_{i,j}\text{TB}_{i,j}} $$