Jupiter Borrowing Rates Recommendations
| Market | Current (bps/hr) | Recommended (bps/hr) |
|---|---|---|
| SOL | .01% | .01% |
| ETH | .01% | .008% |
| BTC | .01% | .008% |
| USDC | .01% | .008% |
| USDT | .01% | .008% |
Recommendations Summary
Based on the current market dynamics and asset performance, we recommend the following adjustments to Jupiter’s borrowing rates:
- SOL: Maintain the current rate of 0.01% per hour
- ETH: Decrease from 0.01% to 0.008% per hour
- BTC: Decrease from 0.01% to 0.008% per hour
- USDC: Decrease from 0.01% to 0.008% per hour
- USDT: Decrease from 0.01% to 0.008% per hour
Detailed Analysis and Rationale
Methodology Overview
Gauntlet utilizes asset volatility measures, realized utilization, and a target utilization level of 80% to derive recommendations.
Capped Based Implementation
Gauntlet’s methodology for deriving borrowing rate parameters can result in large recommended changes. To ensure parameter changes do not create unintended side-effects, we cap all changes by 20% between parameter recommendations. Gauntlet plans to re-assess conditions weekly and continue processing reductions if the market sees fit.
Asset-Specific Analysis
Solana: Unlike its counterparts, SOL has shown increased volatility over the past two weeks, coupled with a notable uptick in utilization. The asset’s utilization has reached approximately 60% by the end of the observed period, signaling growing demand. Furthermore, SOL exhibits a strong positive correlation (0.81) between trading volume and 24-hour rolling volatility. This relationship suggests that periods of high volatility correspond to increased utilization, potentially indicating higher risk exposure for lenders. Given these factors, we recommend maintaining the current borrowing rate for SOL at 0.01% per hour. This conservative approach aims to adequately compensate JLP holders for the increased risk profile while monitoring the asset’s behavior in the coming weeks.
Solana (SOL):
- Recommended hourly borrowing rate: 0.01%
- Recommended borrowing rate APR (cap): 86.7%
- Recommended borrowing rate APR: 86.7%
- SOL Volatility: 72.22%
- SOL Utilization: 76.83%
- Borrowing rate APR at target utilization: 70.08%
Ethereum (ETH) and Bitcoin (BTC): Both Ethereum and Bitcoin have shown similar patterns in terms of utilization and volatility. The 7-day average utilization for both assets has remained below 50% in July, indicating a decrease in borrowing demand. Volatility for both assets has been on a declining trend since mid-May, with July showing relatively stable patterns with only minor fluctuations. Currently, ETH’s 7-day volatility sits around 40%, with 30-day and 60-day metrics slightly higher at 50-55%. BTC shows slightly lower volatility, with 7-day figures around 35-40% and longer-term metrics at 45-50%. Given the decreased utilization and stabilizing volatility, we recommend reducing the borrowing rates for both ETH and BTC from 0.01% to 0.008% per hour. This adjustment aims to make borrowing more attractive while still providing fair compensation for lenders given the reduced risk profile.
Ethereum (ETH):
- Recommended hourly borrowing rate: 0.008%
- Recommended borrowing rate APR (cap): 70.08%
- Recommended borrowing rate APR: 18.27%
- ETH volatility: 39.84%
- ETH Utilization: 36.69%
- Borrowing rate APR at target utilization: 56.06%
Bitcoin (BTC):
- Recommended hourly borrowing rate: 0.008%
- Recommended borrowing rate APR (cap): 70.08%
- Recommended borrowing rate APR: 26.97%
- BTC volatility: 38.16%
- BTC Utilization: 56.54%
- Borrowing rate APR at target utilization: 56.06%
Stablecoins (USDC and USDT): The stablecoins USDC and USDT have consistently shown low and stable utilization throughout the observed period. This pattern suggests a lower risk profile compared to the more volatile cryptocurrencies. To align with the recommendations for ETH and BTC, and to reflect the consistently low utilization, we propose decreasing the borrowing rates for both USDC and USDT from 0.01% to 0.008% per hour. This adjustment should enhance the attractiveness of these assets for borrowers while maintaining appropriate risk-adjusted returns for lenders.
USDC:
- Recommended hourly borrowing rate: 0.008%
- Recommended borrowing rate APR (cap): 70.08%
- Recommended borrowing rate APR: 11.42%
- Current Risky Asset Index volatility: 59.34%
- USDC Utilization: 15.39%
USDT:
- Recommended hourly borrowing rate: 0.008%
- Recommended borrowing rate APR (cap): 70.08%
- Recommended borrowing rate APR: 12.08%
- Current Risky Asset Index: 59.34%
- USDT Utilization: 16.29%
Market Dynamics and Competitive Analysis
Jupiter has emerged as a strong competitor to established platforms like Binance in the perpetual trading market. Contrary to common perception, Jupiter offers highly competitive fees, especially for large-scale trades. Our analysis of trading fees reveals that Jupiter becomes increasingly cost-effective as SOL trade sizes grow:
- For a $70,000 trade, Jupiter’s fee (0.07%) is only marginally higher than Binance’s (0.06%).
- At the $420,000 level, both platforms offer equal fees of 0.10%.
- For $1 million trades, Jupiter becomes more economical at 0.14% compared to Binance’s 0.15%.
- The advantage becomes even more pronounced for $2.5 million trades, where Jupiter’s total fee of 0.26% significantly undercuts Binance’s 0.30%.
Furthermore, a heatmap analysis of all-in costs over various holding periods in June and July highlights that Jupiter allows large traders to both trade and maintain exposure more cost-effectively than Binance, particularly in the short term. This competitive edge in fee structure positions Jupiter favorably in attracting and retaining high-volume traders.
Based on data from June 1, 2024, and historical funding rates on Binance and Ut rates on Jupiter, we observed the following for $2.5m SOL orders: The breakeven time for Binance fees to be cheaper than Jupiter’s, considering all costs (trading fees & borrowing rates), averaged 9.3 hours, with a range of 6 to 16 hours. This means that after 9.3 hours on average, trading on Jupiter becomes more expensive than on Binance for a $2.5m order.
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At the same time, Jupiter is even more competitive with Binance based on the current Ut levels. The 24-hour holding periods on $2.5m SOL trades are at par with the leading CEX.
Disclaimer: Please note that this comparison did not include Binance trading discounts for VIP tiers.
Supporting Data
7D Average Utilization of JLP assets:
Current Utilization of JLP assets:
Solana Utilization:
Volatility of SOL Returns:
Volatility of SOL Utilization:
Strong positive correlation (0.81) between SOL trading volume and 24-hour rolling volatility:
High volatility periods correspond to increased utilization:
ETH Utilization:
Volatility of ETH Returns:
ETH Utilization Volatility:
BTC Utilization:
Volatility of BTC Returns:
BTC Utilization Volatility:
USDT Utilization:
USDC Utilization:
Conclusion
The proposed fee adjustments strike a balance between risk management and competitive positioning. By reducing fees for most assets while maintaining a cautious approach with SOL, Jupiter can enhance its appeal across various trader profiles while ensuring appropriate risk compensation for JLP holders.
