Simple Summary
Gauntlet’s risk simulation platform has identified an opportunity to modify liquidation bonus on one (1) Aave V3 AVAX asset and two (2) Aave V3 Optimism assets without adding outsized market risk.
Additionally, we provide user position analysis below.
Abstract
These parameter updates are a continuation of Gauntlet’s regular parameter recommendations. Our simulation engine has ingested the latest market data (outlined below) to recalibrate parameters for the Aave protocol. The community has aligned on a Risk Off Framework regarding lowering liquidation thresholds.
Motivation
This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.
Gauntlet’s parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Parameter recommendations seek to optimize for this objective function. Our agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet’s simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. As such, the input metrics we show below can help understand why some of the param recs have been made but should not be taken as the only reason for recommendation. The individual collateral pages on the Gauntlet Risk Dashboard cover other key statistics and outputs from our simulations that can help with understanding interesting inputs and results related to our simulations.
For more details, please see Gauntlet’s Parameter Recommendation Methodology and Gauntlet’s Model Methodology.
Avalanche Recs
Supporting Data on Aave V3 AVAX
Top 30 borrowers’ aggregate positions
Top 30 borrowers’ entire supply
Top 30 borrowers’ entire borrows
Top WAVAX non-recursive supplies and collateralization ratios:
Market Price Changes from 2023-01-31 to 2023-02-14
Aave V3 AVAX Parameter Changes Specification
Gauntlet’s simulation engine will continue to adjust risk parameters to maintain protocol market risk at reasonable levels while optimizing for capital efficiency. Our simulations show that the protocol can lower the liquidation bonus for WAVAX on Avalanche Aave v3 without incurring significant additional risk to the protocol.
| Parameter | Current Value | Recommended Value |
|---|---|---|
| WAVAX Liquidation Bonus | 10.0% | 9.2% |
Aave V3 AVAX Risk Dashboard
The community should use Gauntlet’s Aave V3 AVAX Risk Dashboard to understand better the updated parameter suggestions and general market risk in Aave V2. Gauntlet has also launched the Aave Arc Risk Dashboard.
Value at Risk represents the 95th percentile insolvency value that occurs from simulations we run over a range of volatilities to approximate a tail event.
Liquidations at Risk represents the 95th percentile liquidation volume that occurs from simulations we run over a range of volatilities to approximate a tail event.
Aave V3 AVAX Dashboard
Supporting Data on Aave V3 Optimism
Top 30 borrowers’ aggregate positions
Top 30 borrowers’ entire supply
Top 30 borrowers’ entire borrows
Optimism Recs
Aave V3 Optimism Parameter Changes Specification
Gauntlet’s simulation engine will continue to adjust risk parameters to maintain protocol market risk at reasonable levels while optimizing for capital efficiency. Our simulations show that we can improve the balance of risk and capital efficiency by lowering the liquidation bonus for WBTC and raising the liquidation bonus for sUSD on Optimism Aave v3.
| Parameter | Current Value | Recommended Value |
|---|---|---|
| WBTC Liquidation Bonus | 10.0% | 9.4% |
| sUSD Liquidation Bonus | 5.0% | 5.4% |
Aave V3 Optimism Risk Dashboard
The community should use Gauntlet’s Aave V3 Optimism Risk Dashboard to understand better the updated parameter suggestions and general market risk in Aave V3 Optimism.
Value at Risk represents the 95th percentile insolvency value that occurs from simulations we run over a range of volatilities to approximate a tail event.
Liquidations at Risk represents the 95th percentile liquidation volume that occurs from simulations we run over a range of volatilities to approximate a tail event.
Aave V3 Optimism Dashboard
Next Steps:
- Targeting Snapshot vote for V3 AVAX Recs on Tuesday, 2/21/2023 (there is no on-chain vote for V3 AVAX).
- Immediately initiate Snapshot vote for V3 OP Recs given the community has aligned on similar proposals. Should the Snapshot vote pass, initiate AIP.
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