ARC: Risk Parameter Updates 2021-09-30

Simple Summary

A proposal to adjust thirteen (13) total risk parameters across nine (9) Aave V2 assets including LTV, Liquidation Threshold, and Liquidation Bonus.

Abstract

This proposal is a batch update of three risk parameters based on previously selected community risk level preferences. First, a continuation of the two previous liquidation bonus updates, AIP-34: Liquidation Bonus Updates and AIP-38: Liquidation Bonus Updates for Eleven Aave V2 Assets. Second, updated LTV and Liquidation Threshold parameters to realign with the Moderate risk level chosen by the community.

Motivation

This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets. While increased volatility affected most assets in the ecosystem, some tail assets experienced even higher volatility and larger collateral usage (supply that is significantly borrowed against). In addition, increased liquidity and decreased trading slippage for certain assets allow for lower liquidation bonuses.

Specification

Parameter Current Value Recommended Value
WETH Loan To Value 80% 82.5%
CRV Loan To Value 40% 35%
ENJ Loan To Value 50% 55%
ENJ Liquidation Threshold 60% 65%
MANA Loan To Value 60% 65%
MANA Liquidation Threshold 65% 70%
UNI Loan To Value 60% 50%
YFI Loan To Value 45% 50%
YFI Liquidation Threshold 60% 65%
YFI Liquidation Bonus 10% 8%
ZRX Loan To Value 60% 65%
XSUSHI Loan To Value 35% 30%
USDC Liquidation Bonus 5% 4%

See below volatility and collateral usage changes from 9/14 to 9/28 that were important drivers for the updated parameter recommendations.

Symbol 09-28 Volatility 09-14 Volatility Volatility Change Collateral Usage Change USD
WETH 1.012094901 0.979191725 0.032903176 -86338828
ZRX 1.474725052 1.355540968 0.119184084 -328484
UNI 1.592116599 1.324486507 0.267630092 4821417
ENJ 1.660170507 1.706717325 -0.046546818 -2369990
YFI 1.248934665 1.122133261 0.126801404 -1931790
CRV 2.050875845 1.601331664 0.449544181 -2047792
MANA 1.514235863 1.510912129 0.003323734 -1420138
SUSHI 1.829557712 1.499754067 0.329803645 4744051

Risk Dashboard

The community should use Gauntlet’s Risk Dashboard to better understand the updated parameter suggestions and general market risk in Aave V2.

Next Steps

  • Initiate a Snapshot immediately since the community has already weighed in on changes of this nature recently.
  • Targeting an AIP on 2021-10-04
2 Likes

Snapshot voting has been opened immediately and extended slightly due to the weekend overlap. Snapshot

2 Likes