A proposal to gradually wind down the CRV market on Aave V2 Ethereum via a series of LT reductions.
Motivation
In light of the ongoing discussions concerning the CRV market on v2 Ethereum and further propelled by the debates and developments following the Vyper Exploit, our recommendation remains to deprecate the CRV market on V2 by implementing a series of LT reductions.
We have previously proposed and executed the following reductions:
While we advocate for proactive offboarding of the market, our recommendation is that the DAO risk managers deliver a bi-weekly analysis and recommendation for each individual LT reduction. This would be similar to the process of increasing supply caps. if the risk managers agree on a single recommendation, the proposal would move directly to an AIP, but in case of disagreement, the more conservative approach would be adopted, with the alternative proposal put to a Snapshot vote for the community to decide.
Plan:
Following is our recommended bi-weekly plan for communications and community transparency of the process:
Monday - Risk teams conduct independent analyses and recommendations, considering (but not limited to) the following:
Impact of the LT reduction on user positions - number of accounts and total amounts eligible for liquidation post-LT update
Impact of the LT reduction on the health factor of the top accounts
On-chain liquidity
Tuesday - Gauntlet and Chaos Labs post a joint recommendation post after syncing on their analyses above
Wednesday - AIP posted
If risk teams are not aligned on a single recommendation, a Snapshot vote will be posted to gauge community preference
Next Steps:
We invite the community to provide their insights and feedback on this proposal.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
As a next step, and as proposed by ACI, we recommend moving forward to a Snapshot vote next Monday, 08.14.2023, to decide on the community’s desired path forward.
The options as of now, based on Chaos’ recommendations in this post and Gauntlet’s recommendations here, are:
YAE (Chaos Labs)
YAE (Gauntlet schedule 1)
YAE (Gauntlet schedule 2)
NAY
ABSTAIN
Options breakdown:
Chaos Labs
Every 2 weeks, AIP to decrease LT, with a maximum reduction of 10%.
No predefined conditions
Risk teams conduct independent analyses and recommendations, which will be shared with the community in a public governance post with a consolidated recommendation.
If risk teams are not aligned on a single recommendation:
Proceed straight to AIP, adopting the more conservative reduction.
Initiate a Snapshot vote to gauge community preference on the more aggressive reduction suggestion.
Gauntlet Schedule 1
Each week, put up AIP on Wednesday to reduce LT by 5% if the following conditions are met
(size) amount of remaining debt has been cut by 10%
(price) new HF is greater than 1.6 (historical maintained HF without derisk measures) + 17% buffer (representing a 3 standard deviation daily CRV price move)
(liquidity) rolling averaged DEX liquidity (proxied by 2pct depth) > 90% DEX liquidity from previous week
Gauntlet Schedule 2
Each week, put up AIP on Wednesday to reduce LT by 5% if
(price) new HF is greater than 1.6 (historical maintained HF without derisk measures) + 17% buffer (representing a 3 standard deviation daily CRV price move)
and one of the following conditions are met.
(size) amount of remaining debt has been cut by 10%
(liquidity) rolling + snapshotted DEX liquidity has stabilized > 90% average liquidity compared to previous week
We would appreciate @Gauntlet feedback on the proposed next steps and welcome additional community discussion on this proposal.
@ChaosLabs Thanks for proposing the next steps. Gauntlet continues to recommend following a structured and transparent scheduled approach to further lower CRV LT on v2 Ethereum. As detailed in our deprecation schedule, a data-driven and standardized methodology helps minimize risky scenarios as one experienced in the days after the Vyper exploit and provide visibility in the DAOs intentions and roadmap with respect to CRV on v2.
If the community prefers not having a schedule based on pre-defined conditions, and given Chaos’ methodology for the LT reduction is not specified here, Gauntlet recommends both risk providers evaluate the markets every two weeks, instead of having this snapshot vote.
The goal of the Snapshot is to gauge the community preferences and approve an ongoing schedule of AIPs for LT reduction of CRV on V2 Ethereum, eliminating the need to go through Snapshot for each change, thus reducing governance overhead and promoting a more streamlined process. This Snapshot is the only way for the community to properly decide between the available options.
Both options are schedule based, with the main differences being:
While Gauntlet sets fixed conditions which, if unmet, might halt updates, Chaos believes in evaluating the market scenario prior to every scheduled update to recommend the optimal modification, limited to a 10% decrease. The factors we consider mirror those in our past LT reductions and encompass aspects like market liquidity, user HF effects, and potential liquidation risks for existing users.
Chaos advocates for bi-weekly updates, as opposed to Gauntlet’s weekly proposal. Our rationale is to ensure ample time is allocated to assess the implications of each change and fine-tune subsequent ones.
Following discussions with Gauntlet, we have aligned on moving forward with bi-weekly CRV LT reductions, following independent analyses and consolidated recommendations from both parties.
To streamline the governance process, we posted a Snapshot vote for the community to approve a direct-to-AIP framework for the forthcoming reductions, as detailed in the original post above.
Voting start in 24h, thank you in advance for your participation in the vote.
With this, the CRV market on Aave V2 Ethereum is now in a much healthier state. Furthermore, the market boasts ample on-chain liquidity to facilitate healthy liquidations even in the face of substantial price volatility.
Moving forward, to reduce governance overhead, we intend to include recommendations for further CRV LT reductions within the broader Aave V2 markets deprecation plan.
