SNX Analysis on 11/9/2022
On 11/9/2022, SNX utilization on the AAVE V2 Ethereum market reached 100%. This occurred because a large account borrowed the available supply in the SNX market, despite the borrow rate rising to ~200% APY. The high utilization represents a risk to Aave because it can interfere with atomic liquidations. At that time, Gauntlet was analyzing the market risk. Below is Gauntlet’s analysis at that time.
Since then, the risk has abated, and SNX utilization is currently 53%.
Gauntlet’s analysis consisted of two parts.
-
Analyzing potentially risky accounts.
-
Since Gauntlet also manages risk for the Synthetix DAO, we have a deeper understanding of that protocol and modeling of liquidations + Value at Risk. Particularly, our models have more visibility into price levels that could potentially cause liquidation cascades.
For 1) 2 accounts were potentially concerning:
0x18c9cf7f86437398aca31f45365b6168298a5b51
0x23188da77b406127d53b5a0a2047d10a8a481abd
Both of these positions were SNX collateral with Stable borrow (USDT). This was risky because SNX utilization was high, and liquidators could not liquidate other collateral (because those users only had SNX as collateral). The first account was $620k SNX with $380k USDT (1.06 hf), and the second account was $706k SNX with $405k USDT (1.13 hf).
All the other major accounts that borrowed against SNX had other supply positions, usually consisting of majors like stETH, WETH, or MKR, and were well collateralized.
The worst-case insolvencies here were ~$785k (there may have been some dust accounts that increased this figure), and that was in the scenario that SNX price continued to drop to roughly $1.01, then $0.95 or lower. SNX’s price at the time in which Gauntlet conducted the analysis was $1.67. Note these accounts would be eligible for liquidation sooner. Of course, we would add that if other users changed their collateral positions, then this number could have changed.
For 2) we observed key price levels where there would be large liquidations of SNX:
In particular, we were concerned with prices at $1.44 where there would be around ~50M in liquidations of SNX on the Synthetix protocol, and $1.07 where there would be an additional ~80M of liquidations. These could cause liquidation cascades at both levels, and we were keeping track of the situation for both Aave and Synthetix.