Steakhouse USDC on Coinbase

Overview of the strategy and risk management of Steakhouse USDC on Coinbase

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Steakhouse USDC is an example of a Prime lending vault strategy targeting instant liquidity for users. The intention is to expose lenders to the lowest possible risk (what we consider Prime) and the highest possible liquidity (what we consider Instant).

Our Prime mandate is stability, allocating to or lending against only against the most liquid and robust collateral in crypto.

Vault composition

The vault allocates USDC deposits to overcollateralized crypto-backed loan markets on Morpho on Base, namely:

Collateral	Liquidation Loan-to-Value	Risk Rating
cbBTC/USDC	86%	A
cbETH/USDC	77%	A
cbETH/USDC	86%	A
WETH/USDC	86%	A
wstETH/USDC	86%	A

An updated repository of all our risk ratings for Morpho v1 markets is available in Morpho V1 Markets.

Reallocation

We run automated rebalancing bots to reallocate liquidity to different borrow markets depending on market demand. The effect our algorithm has is to slowly equalize the borrowing rates across all markets over time. The interest rate model is reactive to other suppliers of lending capital as well as borrow activity in different markets.

Liquidity

As a reminder, Morpho markets target 90% utilization, meaning that generally 10% of deposited assets are available to meet immediate withdrawals requests. The standard interest rate model seeks to trigger borrower repayments when utilization is >90% by increasing the interest rate charged; the inverse is true when utilization is <90%.

For highly-liquid markets with multiple suppliers of capital, most deposits in Steakhouse USDC should be able to remain liquid. Market stress events, when many liquidations happen due to rapid collateral price decline, typically also see withdrawals from most lending vaults, including Prime-tier vaults. Although the risk of complete inability to withdraw is not 0, Prime markets are typically fully liquid even during these market stress events.

Risk management

For more information on our risk management processes, please consult our Overview of the Risk Framework.

The main strategy the vault follows is to allocate to overcollateralized crypto-backed loans, secured mainly by BTC and ETH related collateral with the highest issuer quality and highest available liquidity. We evaluate collateral on this basis by underwriting three key criteria:

• Asset Rating assesses the quality of the collateral and the role of stakeholders in managing the underlying asset. It evaluates the risk of default by the issuer, as well as potential losses stemming from technological vulnerabilities or poor governance.

• Platform Rating focuses on the resilience of an additional DeFi protocol layer. The platform is the application that transforms the native token into a new one with a different economic purpose. It includes an analysis of the platform’s credibility as an issuer and the risks associated with its technological implementation.

• Market Rating examines the risk parameters configured on the DeFi lending markets. It evaluates the oracle mechanism, the structure and correlation of trading pairs, liquidity depth, and credit enhancements (measures that mitigate the risk of asset loss or bad debt).

This underwriting process results in a grade from the below table which helps us allocate different lending markets to different tiers of vaults.

Rating	Numeric Score	Type
AA	1	Prime
A	2	Prime
BB	3	High Yield
B	4	High Yield
CC	5	Constrained
C	6	Excluded