While Fuse has seen incredible growth over the past several days ($500M+ in TVL, $475M+ from Fuse alone), the next few weeks are poised to be even more exciting with the release of multiple long-anticipated features. This article will explain the functions and benefits of plugins, our new tool designed to combat capital inefficiency within Fuse by increasing supply rates and decreasing borrow rates. This release will include lending plugins, staking plugins, interest rate model plugins, and reactive interest rate plugins.
First off, lending plugins serve as the most basic yet applicable plugins as they utilize idle funds by lending them to other Fuse pools. For example, when enabled, if Fuse pool A has 200,000 worth of idle DAI and pool B is earning 25% interest on supplied DAI, pool A can supply that unused cash to earn extra interest (25%) for its users on top of the existing lending rate for pool A. This works to benefit individual users seeking to maximize returns on their funds through increased interest rates, and the overall Fuse ecosystem as pools with lesser amounts of liquidity can be routed a portion of these idle funds. Users in more utilized pools (pool B) should also see a decrease in their borrow interest rates, allowing them to borrow safely in larger volumes (which cyclically again draws more lending pressure,).
Similar to lending plugins, staking plugins make use of idle funds in Fuse pools. However, instead of lending unused cash in other Fuse pools, staking plugins utilize idle tokens by staking them for rewards through their native platforms. For example, if a user deposits a Sushi-LP (SLP) token and it is not being borrowed, a staking plugin could reroute those idle assets to earn SUSHI on Onsen while being used as collateral, allowing the user to borrow against their funds without suffering the normal opportunity cost of lending their SLP assets. This can be similarly done for TRIBE-FEI LP Tokens with staking on Fei’s contracts and other similar LP assets.
Interest rate model (IRM) plugins allow for the introduction of SLP assets within Fuse. Without these plugins, were SLP assets listed for borrowing, a user might lend an SLP token at 10% interest yet the asset itself could be earning 15% in SUSHI rewards. Thus, it might not be advantageous for the user to continue lending that token. With IRM plugins enabled, the lending interest rate for SLP assets will match the staking rewards yield available on that asset, allowing users to supply SLP tokens and safely borrow against them. This will introduce support for many new SLP assets and overall expand potential collateral options across Fuse, in turn expanding its potential for accessibility and scale.
To round out the bunch, there are reactive interest rates. These plugins function to target a healthy utilization rate (percentage of supplied funds being borrowed) of roughly 75%. Essentially, when enabled, it sets the interest rate model curve slope so that the borrow interest rate just below the curve kink equals the average borrow interest rate over the past week.
For example, if the average borrow rate for ETH was 10% over the past week, then the reactive interest rate plugin would place 10% APR at ~75% utilization, just below the curve kink. If utilization had been above 75% (above the kink), then the corresponding average borrow rate (10% in this example) would be shifted down to ~75%. Likewise, if the utilization had been below 75% (below the kink), the average borrow rate (10% in this example) would be shifted up to ~75%.