Summary
Considering the current liquidity and the rather low market cap of SUSHI, which has been trending lower in recent months, we advise cautiousness should the community decide to include SUSHI as a collateral asset on Ethereum V3. To this end, we suggest the implementation of conservative risk parameters, as detailed in our analysis below.
Liquidity and Market Cap
When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of SUSHI over the past 180 days was ~$216M, and the average daily trading volume was ~$50M (CeFi & DeFi).
Liquidation Threshold
Analyzing SUSHI price volatility over the past, we observed daily annualized volatility of 104.51% and 30-day annualized volatility of 52.54%. Considering this volatility, we recommend launching with an LT of 60%.
We support listing SUSHI as borrowable under reasonable limits of supply cap, as we do not observe a significant risk to the protocol by allowing to borrow the asset.
Debt Ceiling
Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $3.3M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for SUSHI as High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.
Supply Cap, Borrow Cap, and Liquidation Bonus
Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.
Given the concentrated liquidity of SUSHI we recommend a 10% Liquidation Bonus and a derived supply cap of 1,600,000 SUSHI, and a borrow cap of 700,000 SUSHI.
Recommendations
We recommend aligning the parameters to other governance tokens for the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves.
Following the above analysis, we recommend the following parameters if the community decides to list SUSHI:
| Parameter | Value |
|---|---|
| Isolation Mode | Yes |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (SUSHI) | 1,600,000 |
| Borrow Cap (SUSHI) | 700,000 |
| Debt Ceiling | $3.3M |
| LTV | 50.00% |
| LT | 60.00% |
| Liquidation Bonus | 10.00% |
| Liquidation Protocol Fee | 10.00% |
| Variable Base | 0.00% |
| Variable Slope1 | 7.00% |
| Variable Slope2 | 300.00% |
| Uoptimal | 45.00% |
| Reserve Factor | 20.00% |
| Stable Borrowing | Disabled |
| Flahloanable | Yes |
| Siloed Borrowing | No |
| Borrowed in Isolation | No |