[ARFC] Add MAI to Arbitrum Aave V3 Market

Governance
1

Proposal Updated to integrate Risk service provider recommended parameters

Title: [ARFC] Add MAI to Arbitrum Aave V3 pool
Author: @marczeller - Aave-Chan Initiative
Date: 2023-04-13

Summary

This proposal presents Aave with the opportunity to onboard MAI to the Arbitrum Aave V3 Market.

Abstract

MAI is a decentralized stablecoin minted by the Qidao Protocol. For more details about MAI, please refer to Qidao’s official website.

Motivation

Supporting stablecoin diversity is part of the Aave-Chan Initiative (ACI) delegate platform. The risk parameters provided are the same as those adopted on the Polygon PoS Aave V3 Pool.

The newly proposed risk parameters replicating the MAI parameters on Polygon V3 pool are merely suggestions to start the conversation. The ACI is inviting Risk Service Providers to provide feedback on them.

Specification

Ticker: MAI
Contract Address: 0x3f56e0c36d275367b8c502090edf38289b3dea0d

Risk Parameter Value
Isolation Mode YES
Enable Borrow YES
Enable Collateral YES (in isolation mode)
Loan To Value 75%
Liquidation Threshold 80%
Liquidation Bonus 7.5%
Reserve Factor 20%
Liquidation Protocol Fee 10%
Borrow Cap 1,000k
Supply Cap 1,200k
Debt Ceiling 2,000k
Base 0%
Slope1 4%
Uoptimal 80%
Slope2 75%

Disclaimer

The ACI is not affiliated with Qidao or any other entity and has not received payment to present this ARFC.

At the time of writing, the author (@marczeller) owns QI & vQI, the native asset of the Qidao Protocol, for ~50k$. The author was not paid to publish this ARFC.

Next Steps

  1. If consensus is reached and the proposal is refined, submit the ARFC for a snapshot vote for final approval.
  2. If consensus is reached, submit an Aave Improvement Proposal (AIP) to onboard MAI on the Arbitrum Aave V3 pool.

Copyright

Copyright and related rights waived via CC0.

4 Likes
2

Chaos Labs supports the proposal to onboard MAI to V3 Arbitrum with the following parameters:

Risk Parameter Value
Isolation Mode YES
Enable Borrow YES
Enable Collateral YES (in isolation mode)
Loan To Value 75%
Liquidation Threshold 80%
Liquidation Bonus 7.5%
Reserve Factor 20%
Liquidation Protocol Fee 10%
Borrow Cap 1,000k
Supply Cap 1,200k
Debt Ceiling 2,000k
Base 0%
Slope1 4%
Uoptimal 80%
Slope2 75%

Overview

Chaos Labs supports listing MAI in Isolation Mode as part of an overarching strategy to increase the offering of AAVE protocol with more volatile assets. As a low market cap asset, MAI is susceptible to price manipulation, so listing it with an appropriate debt ceiling is crucial to prevent a profitable pump attack.

Liquidity and Market Cap

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of MAI over the past 180 days was $46.6M, and the average daily trading volume was $3.8M (CeFi & DeFi). We find the market cap adequate and the trading volumes reasonable as long as they are considered when setting appropriate supply caps, a debt ceiling, and borrow caps.

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Liquidation Threshold

Analyzing MAI price volatility over the past, we observed daily annualized volatility of 5.66% and 30-day annualized volatility of 2.51%. Considering this volatility and the history of MAI on other networks, we support the suggested LT of 80%.

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We support listing MAI as borrowable under reasonable limits of supply cap, as we do not observe a significant risk to the protocol by allowing to borrow MAI, as long as it is bound by a well-defined cap.

Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we support the initial debt ceiling of $2M.

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 concentrated liquidity of MAI we recommend a 7.5% Liquidation Bonus and a derived supply cap of 1.2M MAI, and a borrow cap of 1M MAI.

We are aware that the initial supply cap is lower than the proposed debt ceiling, as the initial supply cap is conservative to allow future increases after analyzing initial user behavior.

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proposal updated based on feedback & escalated to Snapshot stage

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Gauntlet Parameter Recommendations

The following table contains Gauntlet’s recommended initial parameters for MAI on Optimism. We include Chaos’s recs so that the community can easily compare them, and highlight differences in bold.

Risk Parameter Gauntlet Rec Chaos Rec
Isolation Mode YES YES
Enable Borrow YES YES
Enable Collateral YES YES
Loan To Value 75% 75%
Liquidation Threshold 80% 80%
Liquidation Bonus 5% 7.5%
Reserve Factor 20% 20%
Liquidation Protocol Fee 10% 10%
Borrow Cap 2,400,000 1,000,000
Supply Cap 4,800,000 1,200,000
Debt Ceiling $1,200,000 $2,000,000
Base 0% 0%
Slope1 4% 4%
Uoptimal 80% 80%
Slope2 75% 75%

MAI is an overcollateralized stablecoin backed by collateral in user-managed vaults, similar to DAI.

MAI has previously been listed on Aave V3 Avalanche and Aave V3 Polygon. For the initial MAI listing on Arbitrum, we follow many of the same parameters that it has on other chains.

We recommend the following parameters for MAI on Aave V3 Arbitrum:

Isolation Mode - Yes
Borrowable - Yes
Collateral Enabled - Yes
eMode - No

Supply and Borrow Caps

Supply Cap (in tokens) - 7,500,000 / Borrow Cap (in tokens) - 2,500,000

These caps are determined using Gauntlet’s supply and borrow cap methodology.

Debt Ceiling $1,200,000

Gauntlet recommends starting the debt ceiling at 10% of the token’s on-chain circulating supply. The circulating supply is $12M, so gauntlet recommends a debt ceiling of $1.2M.

LTV - 75% / LT - 80%

Gauntlet recommends the same LTV and LT on Arbitrum as on Polygon and Avalanche, given the similar profiles of these markets.

Liquidation Bonus - 5%

Gauntlet recommends the same Liquidation Bonus on Arbitrum as on Polygon and Avalanche, given the similar profiles of these markets.

Liquidation Protocol Fee - 10%

Gauntlet recommends an LPF of 10%, matching the LPF for MAI on Polygon and Avalanche.

Reserve Factor - 20%

Gauntlet recommends a reserve factor of 20% for MAI on Arbitrum, matching the RF on Polygon and Avalanche.

IR Curves

We recommend the same IR curves used for MAI on Polygon and Avalanche:

Parameter Recommendation
Base Variable Borrow Rate 0%
Variable Rate Slope 1 4%
Optimal Usage Ratio 80%
Variable Rate Slope 2 75%
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To align on a single recommendation for launch parameters, and given the lower debt ceiling in the Gauntlet proposal, we support launching with the following parameters:

Risk Parameter Recommendation
Isolation Mode YES
Enable Borrow YES
Enable Collateral YES
Loan To Value 75%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 20%
Liquidation Protocol Fee 10%
Borrow Cap 2,400,000
Supply Cap 4,800,000
Debt Ceiling $1,200,000
Base 0%
Slope1 4%
Uoptimal 80%
Slope2 75%
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The ACI acknowledge this consensus solution provided by risk service providers and will shortly publish an AIP incorporating them.

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the proposal has been escalated to AIP stage, voting starts tomorrow

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As an update to the community, some users detected a problem with repayments of MAI on Aave v3 Arbitrum and Optimism.

The issue is caused by the lack of full compatibility on the connection Pool -> aToken in the specific case of MAI, as it was listed just after the 3.0.2 upgrade without using a custom implementation, defaulting to 3.0.0.
The 3.0.2 Pool on Optimism/Arbitrum expects a > 3.0.1 version on the aToken of all assets, and even if all non-MAI were upgraded to 3.0.2, the listing of MAI happening just after still uses a 3.0.0 aToken, and so creating an unexpected revert().

This doesn’t really create a meaningful risk to the Arbitrum and Optimism instances for the following reasons:

  • The MAI reserve on those networks is relatively small in terms of users and amounts, with ~100 MAI on Optimism and ~8’000 MAI on Arbitrum supplied.
  • The problem is completely isolated to MAI, not affecting any other asset directly.
  • MAI is an isolated collateral, with no meaningful debt borrowed against.

Repayment could still work by using the Aave v3 repayment with aTokens feature, but given that liquidations of MAI debt can’t be executed, we have coordinated with the Aave Guardian a targeted pause of the MAI reserve, to reduce the growth of the size of the reserve.
This means all actions on MAI are not allowed, but users can still do all other actions with the rest of the assets, supplying them, refilling collateral, borrowing, and liquidations (not involving MAI), etc.

We will be submitting a governance proposal with a fix in the following hours.

3 Likes
9

We have created Aave governance proposal 238 applying a fix to the aforementioned problem.
The proposal, if passed and executed will (on Aave v3 Optimism/Arbitrum):

  • Update the a/v/s token implementations of MAI.
  • Set the flashloanable flag to true, to align with other assets.
  • Un-pause MAI.

Voting will start in ~24h, participate :ghost:

https://app.aave.com/governance/proposal/?proposalId=238

1 Like