Moonwell Proposes Bad-Debt Fix, But User USDC Funds Remain Locked
The DeFi lending protocol Moonwell has proposed a solution to its bad-debt crisis, but user funds remain locked. According to an estimate by Anthias Labs, the proposed rate changes could cut monthly interest accruing on bad debt by about 85%. This would reduce the current $338,785 in monthly interest to $50,273.
The proposed rate changes are part of governance proposal MIP-X66, which has entered its vote collection period. The package combines changes to market risk settings, interest-rate models, and the use of protocol reserves to recapitalize the USDC market.
Moonwell relayed its risk adviser's estimate that the proposed rate changes across seven Base markets would reduce monthly interest on outstanding bad debt from about $338,785 to $50,273. Governance delegate PGov cited the same dollar reduction in supporting MIP-X66.
The reserve component of the proposal addresses a different problem by proposing withdrawals of available protocol reserves on Base and OP Mainnet for conversion to USDC and recapitalization. Moonwell said the withdrawals would apply only to protocol-owned assets, without withdrawing or transferring user funds.