Chaos Labs Analysis and Recommendations
Overview
Chaos Labs supports listing CAKE, BNB, BTCB, BETH, WETH, USDC, and USDT as part of an overarching strategy to enable the expansion of Aave protocol swiftly to other chains.
Liquidity and Market Cap
When analyzing market cap and trading volumes of assets for listing, we look at the past 180 days data:
| CAKE | BNB | BTC | BETH | ETH | USDC | USDT | |
|---|---|---|---|---|---|---|---|
| Average market cap | $643M | $46B | $390B | $2.3B | $172B | $42B | 68B |
| Average daily trading volume (CeFi & DeFi) | $46M | $756M | $30B | $11M | $10B | $3.5B | 43B |
Liquidation Threshold
Analyzing assets’ price volatility over the past, we recommend the following LT settings:
| CAKE | BNB | BETH | |
|---|---|---|---|
| daily annualized volatility | 67.64 | 56.31 | 69.20 |
| 30-day annualized volatility | 36.12 | 44.04 | 55.10 |
| biggest single-day price drop | -27.12% | -18.76% | -17.98% |
| Recommended LT | 60% | 72% | 73% |
For ETH and BTC we use the battle-tested settings used on other V3 deployments. These are initial LTs that will be optimized in the future utilizing our simulation platform.
Cake:
BNB:
BETH:
We support listing all assets as borrowable under reasonable limits of supply cap, as we do not observe a significant risk to the protocol by allowing to borrow them, as long as it is bound by a well-defined cap.
CAKE
Of the above-listed assets, we recommend CAKE be listed in Isolation Mode, given its market cap and trading volume.
Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $11M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for CAKE as High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.
Borrowable in Isolation Mode
We recommend enabling USDC and USDT as borrowable in Isolation Mode
Supply Cap, Borrow Cap, and Liquidation Bonus
Following Chaos Labs’ approach to initial supply caps, as introduced with the Metis deployment recommendations, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.
Given the observed liquidity of the suggested assets, we recommend the following:
| CAKE | BNB | BTCB | BETH | WETH | USDC | USDT | |
|---|---|---|---|---|---|---|---|
| Recommended Liquidation Bonus | 10% | 10% | 10% | 5% | 5% | 5% | 8.5% |
| Liquidity within the Liquidation Bonus Range | 3M | 30,000 | 105 | 150 | 3000 | 8M | 17M |
| RecommendedSupply Cap | 6M | 60,000 | 210 | 300 | 6000 | 16M | 34M |
| Recommended Borrow Cap | 3.3M | 33,000 | 115 | 165 | 3300 | 8.8M | 18.7M |
Full Recommendations
We support the recommendations in the post for the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves. We will provide updated recommendations for IR Curves after publishing our methodology in the coming weeks.
Following the above analysis, we recommend listing the aforementioned assets with the following parameter settings:
| CAKE | BNB | BTCB | BETH | WETH | USDC | USDT | |
|---|---|---|---|---|---|---|---|
| Isolation Mode | YES | NO | NO | NO | NO | NO | NO (see note below) |
| Enable Borrow | NO | NO | NO | NO | NO | YES | YES |
| Enable Collateral | YES | YES | YES | YES | YES | YES | YES |
| Emode Category | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Loan To Value | 55% | 67% | 70% | 63% | 80% | 77.5% | 75% |
| Liquidation Threshold | 60% | 72% | 75% | 73% | 82.5% | 80% | 80% |
| Liquidation Bonus | 10% | 10% | 10% | 5% | 5% | 5% | 8.5% |
| Reserve Factor | 20% | 10% | 10% | 15% | 15% | 10% | 10% |
| Liquidation Protocol Fee | 10% | 10% | 10% | 10% | 10% | 10% | 10% |
| Borrow Cap | 3,300,000 | 33,000 | 115 | 165 | 3,300 | 8,800,000 | 18,700,000 |
| Supply Cap | 6,000,000 | 60,000 | 210 | 300 | 6,000 | 16,000,000 | 34,000,000 |
| Debt Ceiling | 11M | N/A | N/A | N/A | N/A | N/A | N/A |
| uOptimal | 75% | 75% | 45% | 45% | 80% | 80% | 80% |
| Base | 0% | 0% | 0% | 0% | 0% | 0% | 0% |
| Slope1 | 10% | 6.1% | 7% | 7% | 4.8% | 4% | 4% |
| Slope2 | 150% | 100% | 300% | 300% | 80% | 80% | 80% |
| Stable Borrowing | Disabled | Disabled | Disabled | Disabled | Disabled | Disabled | Disabled |
| Stable Slope1 | 13.00% | 13.00% | 13.00% | 13.00% | 13.00% | 13.00% | 13.00% |
| Stable Slope2 | 300.00% | 300.00% | 300.00% | 300.00% | 300.00% | 300.00% | 300.00% |
| Base Stable Rate Offset | 3.00% | 3.00% | 3.00% | 3.00% | 3.00% | 3.00% | 3.00% |
| Stable Rate Excess Offset | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% |
| Optimal Stable To Total Debt Ratio | 20.00% | 20.00% | 20.00% | 20.00% | 20.00% | 20.00% | 20.00% |
| Flahloanable | YES | YES | YES | YES | YES | YES | YES |
| Siloed Borrowing | NO | NO | NO | NO | NO | NO | NO |
| Borrowed in Isolation | NO | NO | NO | NO | NO | YES | YES |
Note on USDT and isolation mode:
Based on market risk and liquidity considerations, we support enabling USDT as collateral outside of isolation mode. However, it’s important to note that the primary concern, as mentioned in previous USDT listings, is the counterparty risk. Ultimately, the community must determine its stance on this issue and decide whether to enable USDT as collateral outside of Isolation mode. If the community is supportive of this, the discussion should be expanded to enabling USDT across the other Aave deployments too. Additionally, the community can choose to raise the reserve factor for USDT, which could serve as a form of compensation for the increased risk associated with USDT in comparison to USDC and DAI.