We propose adjusting two (2) MATIC risk parameters on the Aave Polygon Market: LTV and Liquidation Threshold.
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.
Updating the MATIC parameters seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.
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)
B+ to A-
B+ to A-
C+ to B-
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)
t= 90 days
t= 180 days
t= 365 days
Based upon the volatility data share above, Index Coop suggests changing the Liquidation Threshold and Loan to Value parameters as shown below:
wMATIC Liquidation Threshold
wMATIC Loan to Value
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.
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
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.