We would like to clarify a few of the points made in the comment by @pauliej
Our recommended parameters for the launch are indeed conservative. The V2 LT and LTV configurations (and the basis for the Gauntlet V3 proposal) are generally set high and do not reflect the current market conditions, as proven in the recent CRV attack. Migration to V3 is our highest priority, as stated with our recent V2 coverage extension AIP. However, we don’t believe that the path towards that is setting aggressive risk parameters in V3 to optimize for capital efficiency. Currently, Aave has risk debt, as parameters in V2 were not updated as market conditions deteriorated. It will take a few months to reduce the LTs in V2 responsibly and incentivize a migration to V3. We urge the community not to launch V3 on Ethereum with risk debt from day zero and take on unnecessary risk exposure.
We can always be more aggressive with these parameters if market conditions improve. Scaling them back is a much larger challenge and can be quantified in months of work and prolonged risk exposure, as seen in V2.
We’ve provided an analysis (which can be found at the bottom of our original post) to support the recommended configurations of LT, LTV, and LP for the e-mode category, taking into account observed stETH deviations. Given these parameters, alongside the recommended supply and borrow caps, we feel comfortable with the prospect of profitable liquidations.
As we’ve said in previous posts - we are open to hearing opposing recommendations and considerations. However, lacking data to support claims like the ones above leads to “hand-wavy” conversations that are challenging to manage.
We know that the distribution of positive and negative price returns is not symmetric. However, as the volatility of upward price movement is less severe than that of downward price movement, using this heuristic leads to more conservative LT and LTV recommendations as intended.
As we wrote in our original post, we have devised this interim methodology for the initial launch risk parameters. Under current conditions, our risk-reward tradeoff leans heavily toward risk aversion; therefore, our primary motivation with the interim methodology was to provide a risk-off strategy for the community to opine on. Optimizing for risk-averse parameters while producing recommendations promptly has intentionally yielded less capital-efficient results. Once the simulation framework is complete and published for review, we will iterate on the recommendations to produce more capital-efficient risk parameter recommendations while keeping protocol risk at acceptable levels.
Our analysis has taken into consideration recent historical data, not just a single snapshot. Indeed, it is not guaranteed to remain so, but this is true for any protocol measure. Risk management and parameter recommendations are ongoing processes, and parameters such as these are monitored over time and modified when needed.
Our recommendation is to have a 2-phased approach regarding the assets initially listed. It’s important to emphasize - per our understanding with core contributors - GHO is just a normal V3 asset. It doesn’t benefit from any extra feature, such as only being mintable by some assets or debt ceilings. The only way to restrict collaterals would be with isolation mode. Therefore, the limited assets in our proposal are by design. We want to support a safeguarded GHO launch, ensure high-quality collateral for GHO minting, and allow more time for a community discussion regarding the long-tail assets to be listed, given considerations (GHO launch, economic viability) that were not taken into account in the original Snapshot.