Gauntlet Risk Analysis
For proactivity, given the unique situation, we provide Gauntlet’s recommendation below.
We recommend that all V2 and V3 markets should be paused temporarily.
Main scenarios that Gauntlet analyzed are the amount of insolvencies that could occur if:
- The price of USDC stabilizes,
- The price of USDC recovers, or
- The price of USDC drops significantly lower.
V3 emode assumes correlation of stablecoin assets, but at this time, those correlations have diverged. The risk has increased given that the liquidation bonus is only 1% for USDC on emode. To account for these assumptions that no longer remain true, we recommend pausing the markets.
At current prices, insolvencies are ~550k. These can change depending on the price trajectory and further depegs.
On-chain liquidity has also declined meaningfully, which is impeding liquidations. For example, this account was not liquidated when it was at a health factor below 1. Any liquidations on this account going forward will only prevent the account from recovering and provide no benefit to the protocol.
Below is the total value of the emode pools for Aave V3 pools:
