The following is a joint recommendation from Chaos Labs and Gauntlet after both teams aligned on the recommended configuration and boundaries for the various risk parameters
Summary
We strongly support this proposal, which aims to minimize significant governance involvement, building on the successful implementation of the CapsPlusRiskSteward.
Since the Risk Steward’s introduction in late May 2023, Chaos and Gauntlet have proposed over 65 adjustments that would have otherwise required a full governance cycle. This approach has enhanced the DAO’s ability to dynamically and efficiently adjust caps during this period, reducing significant overhead from the DAO’s technical provider and delegates.
We recommend applying a similar method to other risk parameters, with the community determining the limits of these changes, ensuring oversight of the process.
A guiding principle in our recommendations below is balancing the efficiency of the parameter-setting process with community oversight and control. We aim to optimize the speed and efficiency of implementing “risk-off” updates while ensuring that decisions that are “risk-on” are determined by the community, following the standard governance process.
Proposed Configuration and Boundaries:
- Supply and Borrow Caps:
- Increase: Up to 100% of the current cap with a 5-day interval between updates, similar to the existing procedure.
- Decrease: Up to 100% of the current cap, effectively allowing risk service providers the option to temporarily freeze a market. This is a key change which we invite the community to express their opinion on. Should the community support this recommendation, we propose removing the 5-day interval to ensure updates can be made promptly in any high-risk situation.
- Debt Ceiling:
- Both increase and decrease up to 100% of the current debt ceiling.
- Interest Rate Parameters:
- Base Variable Borrow Rate: +/- 2%
- Slope 1: +/- 2%
- Slope 2: +/- 20%
- Optimal Point (Kink): +/- 10%
- Collateral Risk Parameters:
- When we think about the scenarios where LT/LTV/LB parameters need to be changed quickly, it’s typically in risk-off scenarios such as setting LTV to 0 and deprecating an asset (decrease LT to 0 gradually, where standard governance intervals are overly cost-intensive). Since decreasing LT can cause liquidations, the community may not want to include this capability, since this power can’t be isolated purely to deprecation processes. We do recommend posting a snapshot for using the Risk Steward to be able to decrease LTV, since this does not cause liquidations and is an important risk-off measure.
- Minor increases to LT/LTV/LB are risk-on measures that provide minimal short-term capital efficiency and should require community notice and consensus.
- Based on these considerations, our current recommendation is to authorize the Risk Steward to only make unrestricted LTV reductions without specified intervals as the only collateral risk parameter Risk Steward capability.