Overview
Following BGD’s technical evaluation of Celo and its suitability to deploy an instance of the Aave protocol, Chaos Labs has provided a framework and recommendations for the rest of the risk parameters for community visibility (found at the bottom of this post).
General Overview
- TVL: $111M
- TVL fell sharply in April, coinciding with a broader pullback in markets.
- Volume has been consistently higher since February, with multiple days with over $2M in daily volume.
- Of the DEXes on Celo, Uniswap facilitates more than 90% of volumes.
- There is an instance of Curve Finance on Celo, though volumes are relatively low.
- Ubeswap — a Uniswap V2 fork — was previously the largest DEX by volume on Celo, but has since fallen to a distant second place.
- Overall, the largest protocol on Celo is Mento.
- Mento allows users to mint stablecoins against CELO and other collateral; stablecoin reserves are backed 50/50 by USDC and DAI.
- $20M of Curve’s TVL comes from Mento providing liquidity to the cUSDC/USDC pool.
Liquidity
The majority of liquidity for the assets in question — CELO, USDT, USDC, WETH — is on Uniswap. The largest pool is CELO/WETH, with $24.87M TVL and $176.99M monthly volume.
Pools for native USDT ($70M circulating supply, $30M of which is held by user 0x5754284f345afc66a98fbB0a0Afe71e0F007B949, the Tether Treasury) and newly added native USDC ($16.33M circulating supply) are still relatively small.
Given their relatively new addition and the prevalence of native and bridged stablecoins on the chain, native USDC and USDT have high slippage.
Echoing BGD’s analysis, we do not recommend listing bridged assets — including Wormhole WETH — because of inherent risks associated with bridging.
Recommendations
Liquidation Threshold
For CELO, the only volatile asset we recommend listing, a 30-day annualized volatility of 200.78 leads us to recommend a liquidation threshold of 60% and an LTV of 55%.
For USDT and USDC, we recommend aligning the LT and LTV with similar parameters on other deployments.
Enable Borrow
We support listing all assets as borrowable under reasonable limits as we do not observe a significant risk to the protocol by allowing this.
Enable Collateral
We recommend CELO, USDT, and USDC be enabled as collateral assets, with CELO subject to a conservative debt ceiling to first observe user behavior. cUSD and cEUR are not recommended to be listed as collateral assets because of their mixed backing, including assets held on Ethereum.
Borrowable in Isolation Mode
We recommend enabling cUSD, cEUR, USDT, and USDC as borrowable in Isolation Mode.
Supply Cap, Borrow Cap, and Liquidation Bonus
As described in our Metis and BNB Chain deployment recommendations, we recommend setting the Supply Cap at 2x the liquidity available under the Liquidation Bonus price impact. The Liquidation Bonus is aligned with similar assets on different deployments.
Other
We recommend aligning the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves with other deployments.
Full Recommendations
Following the above analysis, we recommend the following parameters:
| CELO | cUSD | cEUR | USDT | USDC | |
|---|---|---|---|---|---|
| Isolation Mode | YES | NO | NO | NO | NO |
| Enable Borrow | NO | YES | YES | YES | YES |
| Enable Collateral | YES | NO | NO | YES | YES |
| Emode Category | N/A | N/A | N/A | N/A | N/A |
| Loan To Value | 55% | - | - | 75% | 75% |
| Liquidation Threshold | 61% | - | - | 78% | 78% |
| Liquidation Bonus | 10% | - | - | 5% | 5% |
| Reserve Factor | 20% | 15% | 15% | 10% | 10% |
| Liquidation Protocol Fee | 10% | - | - | 10% | 10% |
| Supply Cap | 1,000,000 | 2,000,000 | 800,000 | 700,000 | 2,000,000 |
| Borrow Cap | 500,000 | 1,800,000 | 700,000 | 650,000 | 1,800,000 |
| Debt Ceiling | $500K | - | - | - | - |
| uOptimal | 45% | 90% | 90% | 90% | 90% |
| Base | 0% | 0% | 0% | 0% | 0% |
| Slope1 | 10% | 7% | 7% | 7% | 7% |
| Slope2 | 150% | 75% | 75% | 75% | 75% |
| Stable Borrowing | Disabled | Disabled | Disabled | Disabled | Disabled |
| Flashloanable | YES | YES | YES | YES | YES |
| Siloed Borrowing | NO | NO | NO | NO | NO |
| Borrowable in Isolation | NO | YES | YES | YES | YES |