ARC: Add 1INCH as collateral

Governance New Asset
17

Gauntlet Parameter Recommendation

We leverage Gauntlet’s asset listing framework (which we are tuning for Aave). We considered the following metrics and assessed the risk factors based on the existing params of other assets on Aave (like UNI).

  • Combined (CEX+DEX) slippages for 1INCH to measure how the markets can absorb $300k or 10% of total supplies (since the asset hasn’t been listed yet, we are leaning on 300k before real supply data is available)
  • User distribution
  • Average daily trading volume (ADV)
  • Market Cap
  • Other DEX metrics
  1. The potential price slippage for a large 1INCH sell order ($300k) is around 1.45% for 1INCH/ETH pool on 1inch. With combined (CEX+DEX) liquidity, the price slippage for 1INCH is smaller.
  2. The top liquidity pools of 1INCH on Ethereum DEX are Uniswap V3 and 1inch liquidity pool.

  1. For all the other general market data, we ingested all the information from Messari and Coingecko. Based on real on-chain data, 1INCH is more volatile and risky than comparable assets like UNI due to smaller market cap, smaller & volatile ADV, and more centralized token distribution:

    a. The market cap for UNI ($2.5B) is around 7X higher than the one for 1INCH ($350M) in the recent one month.
    b. The volatility of UNI (1.3-1.4) is greater than the volatility of 1INCH (1.08).
    c. The ADV of 1INCH is volatile, but it’s mostly 30-50% of UNI ADV.
    d. The circulating supply (CS) of UNI is around 456M, and the CS of 1INCH is 559M (denominated in native tokens), which are at the same scale. Based on the token distribution, the 1INCH token holders are more centralized than UNI token holders, as UNI has more active addresses but fewer whales.

As with our recent recommendation on rETH, we strongly recommend that assets not be listed as collateral on the initial listing, and instead observe how real supplies and borrows shape up before listing as collateral.

However, if the community still wishes to list 1INCH as collateral on the initial listing, we would recommend more conservative parameters than what is currently given in the snapshot vote (these can be tuned up as long as it is safe to do so as part of our ongoing dynamic risk parameter optimizations):

  • LTV: 40%
  • liquidation threshold: 50%
  • liquidation bonus: 8.5%
  • RF: 20%
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