Thanks @Pauljlei for this proposal.
Chaos Labs has published an updated methodology for supply and borrow caps, which we used to provide an alternative option we wish to incorporate in the coming Snapshot vote.
Before presenting our recommendations, we would like to address a few general points regarding Gauntlet’s proposal:
- We do not support the aggressive recommendations option presented.
As long as no data to support the assumption above is provided, the community should avoid choosing parameters that rely on it.
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As a general guideline, we view supply and borrow caps as dynamic parameters that should be constantly monitored and updated, given changes in market conditions and utilization of the caps. Therefore, we suggest limiting the increase of caps in a single proposal to double the amount of the current caps. This will allow us to analyze and accommodate borrower and market behaviors.
- If Gauntlet and the community agree on this guideline, we suggest updating the “Aggressive” option recommendations accordingly.
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We support the recommendations for the supply caps on stablecoins and will not provide a separate one.
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We are working on a separate analysis for sAVAX outside of this proposal, which we plan to share soon. We would appreciate taking it out of this proposal and having a separate forum discussion when the analysis is ready.
Chaos Labs Recommendations
In short, our methodology assumes that a given token’s new supply and borrow positions will be distributed similarly to current supply and borrowing activity. We analyze the ability to liquidate current positions given an extreme price drop and then calculate an increased cap that will still allow for healthy liquidations.
Below are our recommendations, calculated using our methodology. As seen in the table, our recommendations allow for controlled growth both in supply and borrow across all assets (besides AAVE token on Optimism)
- Our recommendation for the AAVE token on Optimism is derived from the analysis provided here.
- For WBTC on Optimism, the recommended parameters are very close to the current caps and we therefore recommend not updating them.
