ARC: Polygon Market - wMATIC Risk Parameter Changes

Risk General
1

aip: TBA
title: Polygon Market - wMATIC Risk Parameter Changes
status: Proposal
author: @MatthewGraham @afromac
created: 04/11/2021

Simple Summary

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

Abstract

This proposal updates two MATIC risk parameters on the Aave Polygon 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 MATIC 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 MATIC token on Polygon network is presented below:

wMATIC Polygon Market Risk (Polygon Network Data)

Holders: 168,102 B+ to A- B+
Transactions 100,240,631 A
Mkt Cap 586,568,252 B+ to A-
Av. Vol. $50,675,854 C+ to B-
Norm. Vol 0.06579 C+ to B-

The MATIC token risk score compiled by Index Coop is B+. This matches the risk score cited here. However, the volatility score of B- (C+ to B-) is justified by the 0.06579 score compared to 0.064 in the table presented in the documentation. Further to this, assets like BAL and BAT on Ethereum have similar vol characteristics to wMATIC on Polygon. The Norm. Vol parameter is the average of the t=30 days and t=90 days as shown in the below table.

wMATIC Volatility Data (Polygon Network Data)

Time S.D Vol
t=7 days 0.08475
t=30 days 0.06535
t= 90 days 0.06622
t= 180 days 0.09013
t= 365 days NA

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
wMATIC Liquidation Threshold 65% 70%
wMATIC Loan to Value 50% 65%

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 Polygon 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.

7 Likes
2

Hello @MatthewGraham
I get the rational and on the surface it seems reasonable and I expect it would be something that we should support
I dont suppose you have a measure of the rolling volatility using 7, 30 and 90 day periods? It would be useful to understand what the trend might be as it does seem like it maybe trending slowly downwards.
The proposed change in LTV seems justified from the information given albeit a bit of a jump from where we are now - do we normally make large movements like this or would an incremental move starting by perhaps 5%points to be followed with similar moves at monthly intervals be more normal
Finally is it possible to get Gauntlet to run this through their models to get an idea of the impact particularly in LTV and liquidation propensity

1 Like
3

Hi Jeremy

To your first point, here is the rolling volatility for those time periods. The chart is on a log scale to help with visibility. What I am seeing is a general trend towards lower volatility, with recent spikes gradually diminishing in magnitude.

Thanks for your input and consideration here.

Matic (Polygon Network) Rolling Volatility
Matic (Polygon Network) Rolling Volatility840×519 48.7 KB

2 Likes
4

Hi All,

I have created a Snapshot vote schedule to start 16th November and finishing on the 18th November.

Please do participate in the vote, link below.

https://snapshot.org/#/aave.eth/proposal/0xcc559149703460cfdcbbed5859d327ce3ede235dd7d8b7d2454744e54fab312c

1 Like
5

Hi All,

Further to the above, please note DeFi Pulse has proposed creating MATIC2x-FLI on the Aave Polygon Market.

For this product to be robust, the LTV parameters changes suggest in the ARC here are required. Otherwise, users are at greater risk of being liquidated during periods of volatility.

1 Like
6

Hi All,

Voting is now live on Snapshot.

https://snapshot.org/#/aave.eth/proposal/0xcc559149703460cfdcbbed5859d327ce3ede235dd7d8b7d2454744e54fab312c

Please do express your view by participating in the snapshot vote.