ARC: Raise LTV and liquidation threshold for AVAX on Aave V3 markets on Avalanche

ARC: Raise LTV and liquidation threshold for AVAX on Aave V3 markets on Avalanche

AVAX has been live on Aave V2 since October 2021, and live on Aave v3 since inception on March 13. Currently, AVAX is the most utilized non-stablecoin asset on Aave V3 on Avalanche. This proposal aims to increase capital efficiency for the market by increasing LTV to 70% and Liquidation threshold to 75%.

The table below shows the current relevant metrics for non-stablecoin assets and proposed changes to AVAX market:

Asset Total Supply Total Borrow Utilization LTV Proposed LTV Liquidation Threshold Proposed Liquidation Threshold
AVAX $91.9M $32.2M 35.0% 65% 70% 70% 75%
WETH $129.5M $8.8M 6.8% 80% No change 82.5% No change
WBTC $83.7M $3.8M 4.6% 70% No change 75% No change
LINK $8.4M $520K 6.2% 50% No change 65% No change
sAVAX $11.3M $0 0% 20% No change 30% No change
AAVE $400k $0 0% 60% No change 70% No change

Current AVAX Market Data:

Holders 3.0M
Market Cap $6.3B
Transactions 227M
Avg. Volume 1 month $657M
Avg. Volume 3 month $540M

Holders are estimated by the cumulative address count on Avalanche Mainnet and transactions are based on cumulative onchain transactions.

Market Cap is calculated using circulating supply.

Volume data is based on Coingecko’s historical volume data.

Increasing the LTV of AVAX by 5% will increase the capital efficiency of the current AVAX market by about $4.5M. This would bring the risk parameters for AVAX to be more in line with those of WETH and WBTC. Even without the increase, AVAX is the most utilized non-stablecoin asset on Avalanche Aave V3. Increasing the LTV and liquidation threshold will further contribute to a more active and efficient market on Avalanche.

2 Likes

Hi folks,

In the current market conditions, the focus should be on risk management rather than capital efficiency. As you mention AVAX is already among the most capital efficient collaterals. Market risks have increased in the last couple of months, in particular volatility.

Based on the current liquidity on the market, a 5% increase gives users $4.1M ($82M * 5%) additional borrowing power while selling just $4.1M AVAX to USDC will have 13% slippage on Avalanche 1inch.

I dont really understand the reasoning behind this ARC, could you please justify how the market metrics of AVAX have improved to support more aggressive parameters?

1 Like

We think that based on the current market condition, we should prioritise risk management rather than capital efficiency. The current utilisation of AVAX is considered very efficient.

We agree with @Alex_BertoG that increasing the LTV will increase more sell pressure, and the current size of the liquidity pool may not be large enough.

However, these are our opinions based on the current information on the ARC. We would like to know more about the motivation behind this. How would this proposal benefit Aave and the current situation of AVAX? If you still want to push forward this ARC. Can you provide a more detailed risk analysis because this is an aggressive adjustment?

Again, these are only our current opinions based on what we know.