ARC: Avalanche Market - AVAX Risk Parameters Update


aip: TBA
title: ARC: Avalanche Market - AVAX Risk Parameters Update
status: WIP
author: @MatthewGraham from Index Coop and @ChrisG from Defi Pulse
created: 28-01-2022


Simple Summary

We propose adjusting two (2) AVAX risk parameters on the Aave Avalanche Market: LTV and Liquidation Threshold.

Abstract

This proposal updates two AVAX risk parameters on the Aave Avalanche Market to align with the Moderate risk level chosen by the Aave community. Index Coop has compiled the following analysis for Gauntlet and the broader Aave community to review.

Motivation

Updating the AVAX parameters seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.

Specification

The criteria for assessing market risk, as determined by the market size and changes in fluctuation in demand, is presented by the Aave community here. In line with the criteria, analysis of the AVAX token on Avalanche network is presented below (data as of Jan. 23, 2021):

AVAX Avalanch Market Risk (Coingecko Data)

Holders: 1.8 m A B+
Transactions (C-chain) 79 m B+
Mkt Cap $15 bn A+
Avg. Volume 1m $860 m B+
Avg. Volume 3m $1.14 bn B+
Norm. Volatility 6.21% B-

The AVAX token risk score compiled by Index Coop is B+.

Holders are estimated by the cumulative address count.

Market Cap is calculated using circulating supply.

The Norm. volatility parameter is the average of the t=30 days and t=90 days as shown in the below table.

AVAX Volatility Data (Coingecko Data)

Time S.D. of daily log returns
t=7 days 6.21%
t=30 days 5.54%
t= 90 days 6.88%
t= 180 days 7.80%
t= 365 days 8.81%

Based upon the volatility data share above, Index Coop suggests changing the Liquidation Threshold and Loan to Value parameters as shown below:

Parameter Current Value Recommended Value
AVAX Loan to Value 50% 60%
AVAX Liquidation Threshold 65% 70%

Implementation

We are actively seeking feedback on how to implement this proposal. At this point in time an AIP vote could signal community intent/desire to change the requirements with the changes to be made by the guardians of the Aave Avalanche Market or via the AIP if a permissionless process is in place by that point in time.

Copyright

Copyright and related rights waived via CC0.

3 Likes

Given the progression of the Aave Market on Avalanche, and the progression of $AVAX as a coin into and around the top 10, I support raising the LTV and Liquidation Thresholds and this proposal. The changes are consistent with other coins risk metrics as well.

1 Like