Gauntlet Recommendations
Following the Snapshot vote, Gauntlet’s initial recommendations for Aave V3 ETH deployment are below.
One challenge of parameterizing markets with no usage (new markets) is the lack of user data to train simulation models. At a high level, our research has shown that simulations using mock data are inaccurate (due to priors on the mocks not being representative of real-world usage in the protocol). As such, we are using the information and insights from simulations we have conducted on current Aave V2 ETH and Aave V3 AVAX to inform recommendations, but the risk analysis does not solely rely on those simulation results.
| Symbol | Isolation Mode | Borrowable | Collateral Enabled | LTV | LT | LB | RF | LPF | Debt Ceiling | Supply Cap | Borrow Cap | Supply Cap USD | Borrow Cap USD |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| USDC | NO | YES | YES | 8,650 | 8,850 | 10,480 | 1,000 | 0.20 | 0 | 2,000,000,000 | 591,700,000 | $1,918,303,914 | $591,631,355 |
| WETH | NO | YES | YES | 8,250 | 8,600 | 10,520 | 1,000 | 0.10 | 0 | 600,000 | 469,000 | $690,915,520 | $552,732,416 |
| WSTETH | NO | YES | YES | 7,200 | 8,300 | 10,720 | 1,000 | 0.10 | 0 | 600,000 | 94,000 | $682,967,764 | $106,998,283 |
| WBTC | NO | YES | YES | 7,200 | 8,200 | 10,520 | 2,000 | 0.10 | 0 | 40,000 | 4,600 | $594,982,530 | $75,440,126 |
| USDT | YES | YES | YES | 7,500 | 8,100 | 10,530 | 1,000 | 0.20 | 10,000,000 | 680,000,000 | 303,000,000 | $678,186,530 | $302,976,250 |
| DAI | NO | YES | YES | 7,650 | 8,900 | 10,430 | 1,000 | 0.20 | 0 | 320,000,000 | 114,400,000 | $316,922,850 | $114,357,765 |
| LINK | YES | YES | YES | 6,950 | 8,250 | 10,720 | 2,000 | 0.10 | 25,059,000 | 32,000,000 | 2,650,000 | $183,541,004 | $15,482,976 |
| CRV | YES | YES | YES | 5,500 | 6,100 | 10,830 | 2,000 | 0.10 | 20,929,000 | 140,000,000 | 25,000,000 | $67,634,449 | $12,986,109 |
| AAVE | NO | NO | YES | 6,600 | 7,300 | 10,770 | 0 | 0.10 | 0 | 3,000,000 | 0 | $155,435,804 | $0 |
| MKR | YES | YES | YES | 6,500 | 7,000 | 10,770 | 2,000 | 0.10 | 4,592,000 | 60,000 | 1,100 | $30,906,375 | $579,653 |
| TUSD | YES | YES | YES | 8,000 | 8,250 | 10,520 | 1,000 | 0.10 | 4,451,000 | 24,000,000 | 7,180,000 | $23,507,765 | $7,178,272 |
| FRAX | NO | YES | NO | 0 | 0 | 0 | 2,000 | 0.00 | 0 | 29,000,000 | 10,900,000 | $28,397,588 | $10,844,134 |
| BUSD | NO | YES | NO | 0 | 0 | 0 | 1,000 | 0.00 | 0 | 47,000,000 | 12,800,000 | $46,961,233 | $12,774,788 |
| YFI | YES | YES | YES | 5,000 | 6,500 | 10,770 | 2,000 | 0.10 | 16,187,000 | 10,000 | 200 | $24,279,888 | $1,082,947 |
| UNI | YES | YES | YES | 6,500 | 7,700 | 10,930 | 2,000 | 0.10 | 17,112,000 | 6,000,000 | 437,000 | $28,204,849 | $2,245,127 |
| ZRX | YES | YES | YES | 5,500 | 6,500 | 10,770 | 2,000 | 0.10 | 6,062,000 | 79,000,000 | 933,000 | $12,609,873 | $149,189 |
| MANA | YES | YES | YES | 6,150 | 7,500 | 10,770 | 3,500 | 0.10 | 6,869,000 | 34,000,000 | 1,980,000 | $10,302,960 | $612,605 |
| 1INCH | YES | YES | YES | 4,000 | 5,000 | 10,880 | 2,000 | 0.10 | 14,331,000 | 56,000,000 | 1,100,000 | $21,496,425 | $426,397 |
| DPI | YES | YES | YES | 6,500 | 7,000 | 10,770 | 2,000 | 0.10 | 118,000 | 50,000 | 4,500 | $2,350,324 | $257,971 |
| SNX | YES | YES | YES | 4,900 | 6,500 | 10,770 | 3,500 | 0.10 | 8,641,000 | 11,000,000 | 3,600,000 | $16,753,891 | $5,641,686 |
| CVX | YES | YES | YES | 3,500 | 4,500 | 10,880 | 2,000 | 0.10 | 3,367,000 | 2,000,000 | 257,000 | $5,049,037 | $868,088 |
| BAT | YES | YES | YES | 6,500 | 7,000 | 10,770 | 2,000 | 0.10 | 4,898,000 | 41,000,000 | 2,100,000 | $7,345,858 | $377,538 |
| SUSD | NO | YES | NO | 0 | 0 | 0 | 2,000 | 0.00 | 0 | 5,000,000 | 1,850,000 | $4,693,138 | $1,868,455 |
| BAL | YES | YES | YES | 6,500 | 7,000 | 10,830 | 2,000 | 0.10 | 3,390,000 | 1,000,000 | 185,000 | $5,084,701 | $980,370 |
| LUSD | NO | YES | NO | 0 | 0 | 0 | 1,000 | 0.00 | 0 | 3,000,000 | 1,210,000 | $2,355,611 | $1,229,852 |
| ENS | YES | YES | YES | 5,000 | 6,000 | 10,830 | 2,000 | 0.10 | 12,663,000 | 2,000,000 | 40,000 | $18,993,939 | $442,272 |
Supply Cap / Borrow Cap / Debt Ceiling
Caps and debt ceilings can be further fine-tuned as the protocol gathers more data on how usage grows. Setting robust, growth-oriented caps and debt ceilings both minimize the possibilities of insolvencies from price manipulation and liquidation cascades and enable further protocol growth. Gauntlet’s supply cap and debt ceiling methodology builds from the current v2 loanbook, taking into account for each analyzed asset how conducive this asset is to price manipulation and how that relates to potential attacker profitability given protocol parameters. The supply caps help ensure that attacker profitability is negative, given their capital firepower, in order to disincentivize such attacks so that the protocol does not incur bad debt while concurrently providing room for the protocol to grow.
Explicitly, Gauntlet recommends the proposed debt ceiling for each asset in isolation mode to be a small fraction of the capital needed to launch a price manipulation attack with >= 0 profitability. The amount of capital was derived via how much a potential attacker would need to manipulate the price of an asset, which would enable them to borrow positions that could lead to bad debt. This not only gives a considerable margin of safety that protects the protocol from potential attacks - since attackers seek to be profitable before launching an attack - but also provides ample room for the protocol to grow. Concurrently, because supply caps are intimately linked with the debt ceiling, Gauntlet recommends the supply cap to be a function of the v2 position book and the capital needed for a profitable attack.
Similarly, Gauntlet recommends the proposed borrow caps for each asset to allow for growth and minimize risk from potential market manipulations. Borrow caps were calculated based on v2 borrow balances and the recommended v3 supply caps above. We calculate the borrow caps as follows:
Utilizing current balances on v2 Aave and v3 supply caps allows the protocol to optimize for market precedence and market risk. We recommend these caps to allow for migration from the Aave v2 market.
Caps are something that may organically be tuned as the protocol acquires more TVL. Gauntlet will run regular analyses and make frequent updates to ensure the caps best balance insolvency minimizations with protocol growth.
Liquidation Threshold / Loan-to-Value
Gauntlet has previously provided parameter recommendations for LTV and LT for Aave v2 and Aave v3 Avalanche. We recommend initial Aave v3 Ethereum LT to be the average of the LT on Aave v2 and Aave v3 Avalanche, weighted by the total supply of the asset in v2 and v3 Avalanche. Similarly, we recommend initial Aave v3 Ethereum LTV to be the average of the LTV of v2 and v3 Avalanche, weighted by the total supply of the asset.
Initializing LTV and LT on v3 Ethereum with the weighted average of LTV and LT on v2 and v3 Avalanche will allow v3 Ethereum to both draw upon battle-tested precedent (v2 parameters) and also to take into account v3 dynamics (v3 Avalanche) while avoiding the potential inaccuracies of parameters derived from simulations run on spoofed and generated data.
Isolation Mode assets
Gauntlet recommends USDT, LINK, CRV, MKR, TUSD, YFI, UNI, ZRX, MANA, 1INCH, DPI, SNX, CVX, BAT, BAL, ENS to be listed in isolation mode. These assets either have exogenous risk factors that undermine their quality as collateral or have low float and could be subject to price manipulation, putting Aave at risk of bad debt.
Non borrowable assets
Like in v2, Gauntlet recommends AAVE to not be borrowable due to governance manipulation risk.
Non collateral assets
Gauntlet recommends BUSD, LUSD, SUSD, FRAX to not be enabled for collateral due to usage and exogenous risk factors that undermine their quality as collateral.
Reserve Factor
Gauntlet recommends asset reserve factors to be the reserve factors on v2, which will allow v3 Ethereum to draw upon battle-tested precedent.
Liquidation Bonus
Gauntlet has previously recommended Liquidation Bonuses for the Aave v2 market to account for the price slippage and volatility on Eth Mainnet. As such, we recommend implementing the liquidation bonuses from Aave v2 assets, adjusted upwards by a small amount due to the Liquidation Protocol Fee, such that 10000 + (1-LPF)*(LB - 10000) = v2 LB.
Liquidation Protocol Fee
Gauntlet recommends that stablecoins have 20% LPF and non stablecoins have 10% LPF. The LPF is a percentage of the LB that ultimately contributes to Aave reserves. Ultimately, more data is needed to conduct analysis on what optimal LPFs should be. LPFs, like LBs, are intimately linked to liquidation behavior, as they serve as the primary incentive for liquidators. LPF too high (and unadjusted LB) may deter liquidators from conducting liquidations due to fears of unprofitability. Likewise, a higher LPF, with an upwards adjusted LB to ensure liquidators have the same bonus as in v2, may cause too much of the collateral to be eaten up by liquidations, which also impacts liquidator behavior.
With regards to the breakdown between stablecoins and non stablecoins - while LPF is important to help build Aave v3 reserves over time to counter potential insolvencies, it is valuable to ensure liquidators are not disincentivized due to a high relative LPF. Non stablecoins are more volatile and may incur more slippage during liquidations, so in order to ensure liquidator incentives remain robust, we recommend a lower LPF for non stablecoins.
Gauntlet recommends 20% LPF for stablecoins and 10% LPF for non stablecoins to allow for protocol revenue from LPF while minimizing effects on liquidator behavior and user experience.
By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.