[ARFC] Chaos Labs - Borrow Cap Reductions on Aave Ethereum - 03.11.24
Vote Result: YES
Rationale
Mitigating the volatility of long-tailed assets by reducing borrow caps for these assets, especially in such a high-volatility environment as the one we are in currently, will reduce risk for the protocol. Chaos Labs’ formula makes sense, especially given that it accounts for the max amount that can be safely liquidated in an extreme scenario.
One concern for us is that there should be a balance between having conservative borrow caps for these long-tail assets and the fees they generate. For example, if an asset generates fees above a certain threshold, then its borrow cap can be set on a case-by-case basis rather than reducing the cap to an amount which will significantly reduce the amount it is borrowed and in turn reduce revenue for the DAO in this lucrative market environment.
Given the above, we suggest a more granular approach towards these long-tail assets but do acknowledge the need to de-risk Aave v3 in this environment. Therefore, we will vote YES in favour of this proposal and hope that there is a framework created on the lines of what @EzR3aL has mentioned.