ARC: Risk Parameter Updates 2021-10-07

Simple Summary

A proposal to adjust thirteen (13) total risk parameters across eleven (11) Aave V2 assets including LTV, Liquidation Threshold, and Liquidation Bonus.

Abstract

This proposal is a batch update of three risk parameters to align with the Moderate risk level chosen by the Aave community. These parameter updates are a continuation of Gauntlet’s regular parameter recommendations, the latest being AIP-39: Risk Parameter Updates for Aave V2 assets.

Motivation

This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets. Volatility for non-stablecoin crypto assets remains high. As such, we focused on supporting protocol safety for our parameter changes in this cycle.

Adjustments were also made for three liquidation bonus values. These assets (UNI, BAL, LINK) saw increases in liquidity and trading volume and a reduced liquidation recommended value as a result. As always, simulation recommended values seek to maintain capital efficiency and uphold borrow usage levels.

Specification

Parameter Current Value Recommended Value
REN Loan To Value 55% 50%
SNX Loan To Value 20% 30%
SNX Liquidation Threshold 45.0% 55.0%
DPI Loan To Value 60% 55%
UNI Loan To Value 60% 55%
UNI Liquidation Bonus 10.0% 8.0%
YFI Loan To Value 45% 50%
BAL Liquidation Bonus 10.0% 8.0%
LINK Liquidation Bonus 10.0% 7.5%
BAT Liquidation Threshold 75.0% 80.0%
ENJ Liquidation Threshold 60.0% 65.0%
MANA Liquidation Threshold 65.0% 75.0%
ZRX Liquidation Threshold 70.0% 75.0%

See below volatility and exchange volume data from 9/28 to 10/06 that were important drivers for the updated parameter recommendations.

It is important to note that these drivers give insight into why Gauntlet’s simulations will output a new VaR calculation for a set of parameters, but each parameter can not be estimated by input changes. For example, the decrease in trading volume for DPI indicates lowered liquidity, while there are large increases for ENJ, MANA, and BAT. These suggest more liquidity and easier liquidations, but that relationship changes over time.

Symbol 10-06 Volatility 09-28 Volatility Volatility Change Weekly Average Daily Volume Change (%)
BAL 1.571708299 1.639825348 -0.068117049 -10.9455427
BAT 1.26231086 1.275188876 -0.012878016 15.9070933
DPI 1.248509981 1.229162786 0.019347195 -32.3316308
ENJ 1.684204979 1.660170507 0.024034472 41.6823744
LINK 1.516493567 1.544861958 -0.028368391 -26.3753689
MANA 1.496152162 1.514235863 -0.018083701 17.6977064
REN 2.073377777 2.076540272 -0.003162495 -30.6057152
SNX 1.817169075 1.805791921 0.011377154 -8.6204277
UNI 1.625790476 1.592116599 0.033673877 -10.4719062
YFI 1.240436029 1.248934665 -0.008498636 -4.4142493
ZRX 1.496783606 1.474725052 0.022058554 -14.7444996

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 2021-10-11
2 Likes

https://snapshot.org/#/aave.eth/proposal/QmbfxdR8yABDQpjKmXyDbnquWC8AJbdFajjR4zrX3Ss5R5

AIP parameter implementation details:

{
“BAL”: {
“symbol”: “BAL”,
“address”: “0xba100000625a3754423978a60c9317c58a424e3d”,
“liquidationBonus”: “10800”
},
“BAT”: {
“symbol”: “BAT”,
“address”: “0x0d8775f648430679a709e98d2b0cb6250d2887ef”,
“liquidationThreshold”: “8000”
},
“DPI”: {
“symbol”: “DPI”,
“address”: “0x1494ca1f11d487c2bbe4543e90080aeba4ba3c2b”,
“ltv”: “5500”
},
“ENJ”: {
“symbol”: “ENJ”,
“address”: “0xf629cbd94d3791c9250152bd8dfbdf380e2a3b9c”,
“liquidationThreshold”: “6500”
},
“LINK”: {
“symbol”: “LINK”,
“address”: “0x514910771af9ca656af840dff83e8264ecf986ca”,
“liquidationBonus”: “10750”
},
“MANA”: {
“symbol”: “MANA”,
“address”: “0x0f5d2fb29fb7d3cfee444a200298f468908cc942”,
“liquidationThreshold”: “7500”
},
“REN”: {
“symbol”: “REN”,
“address”: “0x408e41876cccdc0f92210600ef50372656052a38”,
“ltv”: “5000”
},
“SNX”: {
“symbol”: “SNX”,
“address”: “0xc011a73ee8576fb46f5e1c5751ca3b9fe0af2a6f”,
“ltv”: “3000”,
“liquidationThreshold”: “5500”
},
“UNI”: {
“symbol”: “UNI”,
“address”: “0x1f9840a85d5af5bf1d1762f925bdaddc4201f984”,
“ltv”: “5500”,
“liquidationBonus”: “10800”
},
“YFI”: {
“symbol”: “YFI”,
“address”: “0x0bc529c00c6401aef6d220be8c6ea1667f6ad93e”,
“ltv”: “5000”
},
“ZRX”: {
“symbol”: “ZRX”,
“address”: “0xe41d2489571d322189246dafa5ebde1f4699f498”,
“liquidationThreshold”: “7500”
}
}