[ARFC] - Chaos Labs RF and IR Updates - Aave V2 Ethereum - 2023.11.24

Governance
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Summary

A proposal to update Reserve Factors and IR curves for frozen assets on V2 Ethereum as part of the ongoing deprecation plan.

Motivation

In the past several months, the community is in the process of gradually winding down the V2 markets via a series of LT reductions and incremental increases in RFs. These efforts have been ongoing with the following proposals already implemented:

Below are the current supply and borrow amounts and utilization for V2 Ethereum frozen assets, excluding assets that have already had IR curves amended in previous proposals and LINK, which will be accommodated separately:

Asset Total Supply ($) Total Borrows ($) Utilization Rate Borrow APY Base Uoptimal Slope1 Slope2
CRV $10,580,000 $2,310,000 21.83% 10.44% 3% 45% 17% 300%
SNX $3,570,000 $2,080,000 58.26% 12.44% 3% 80% 15% 100%
MKR $4,830,000 $341,800 7.08% 1.11% 0% 45% 7% 300%
DPI $322,890 $264,000 81.76% 586% 0% 50% 7% 300%
ZRX $1,840,000 $210,290 11.43% 0.18% 0% 45% 7% 300%
CVX $510,630 $199,390 39.05% 6.24% 0% 45% 7% 300%
1INCH $107,930 $107,930 100.00% 2054% 0% 45% 7% 300%
MANA $860,890 $68,980 8.01% 1.25% 0% 45% 7% 300%
ENJ $421,880 $53,730 12.74% 2% 0% 45% 7% 300%
RAI $257,980 $49,400 19.15% 0.96% 0% 80% 4% 75%
UNI $5,650,000 $47,010 0.83% 0.13% 0% 45% 7% 300%
AMPL $40,750 $39,800 97.67% 186.21K% 1% 80% 3% 750%
BAT $168,860 $36,360 21.53% 3.41% 0% 45% 7% 300%
BAL $465,520 $35,720 7.67% 7.37% 5% 80% 27% 150%
YFI $1,160,000 $27,900 2.41% 0.37% 0% 45% 7% 300%
KNCL $32,320 $20,330 62.90% 8.03% 0% 65% 8% 300%
ENS $9,200,000 $18,200 0.20% 0.03% 0% 45% 7% 300%
UST $85,430 $10,150 11.88% 0.60% 0% 45% 7% 300%
REN $174,060 $6,900 3.96% 0.62% 0% 45% 7% 300%
xSUSHI $888,870 $727 0.08% 0.01% 0% 45% 7% 300%

Untitled - 2023-11-24T160345.695

As part of our ongoing deprecation process, we propose the following measures designed to motivate the repayment of borrowed assets and the redemption of supplied assets:

Increase Reserve Factors:

In order to further disincentivize the supply of the assets being deprecated, this proposal recommends setting the RFs of all frozen assets on V2 Ethereum to near 100%. This change will effectively remove any yield for depositors of these assets, thereby discouraging their supply.

Increase Borrow Rates:

To encourage the repayment of borrowed assets, we propose raising the borrow rates across V2 frozen assets. This will be achieved by creating a constant borrow rate up to the currently set UOptomal configuration. Accordingly, we put forward the following options for the community to choose from:

Moderate (Chaos Recommendation):

  1. Set Base Rate at 20%
  2. Set Slope1 at 0%
  3. Set Slope2 at 300%

Aggressive:

  1. Set Base Rate at 40%
  2. Set Slope1 at 0%
  3. Set Slope2 at 300%

After these changes are put into effect, we’ll evaluate their influence on loan repayments and, if necessary, offer additional recommendations. Future updates could involve further hikes in borrow rates and adjustments to the UOptimal points.

Specification

Asset Current RF Rec RF Current Base Recommended Base Current Slope1 Recommended Slope1 Current Slope2 Recommended Slope2
1INCH 30% 99.90% 0% 20% / 40% 7% 0% 300% 300%
BAL 35% 99.90% 5% 20% / 40% 22% 0% 150% 300%
BAT 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
CRV 30% 99.90% 3% 20% / 40% 14% 0% 300% 300%
CVX 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
DPI 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
ENJ 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
ENS 30% 99.90% 0% 20% / 40% 7% 0% 300% 300%
MANA 50% 99.90% 0% 20% / 40% 7% 0% 300% 300%
MKR 30% 99.90% 0% 20% / 40% 7% 0% 300% 300%
REN 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
SNX 45% 99.90% 3% 20% / 40% 12% 0% 100% 300%
UNI 30% 99.90% 0% 20% / 40% 7% 0% 300% 300%
xSUSHI 50% 99.90% 0% 20% / 40% 7% 0% 300% 300%
YFI 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
ZRX 35% 99.90% 0% 20% / 40% 7% 0% 300% 300%
KNCL 30% 99.90% 0% 20% / 40% 8% 0% 300% 300%
UST 20% 99.90% 0% 20% / 40% 4% 0% 300% 300%
AMPL 10% 99.90% 1% 20% / 40% 2% 0% 750% 300%
RAI 20% 99.90% 0% 20% / 40% 4% 0% 75% 300%

Next Steps:

  1. Following community feedback, submit the ARFC for a snapshot vote for final approval.
  2. If consensus is reached, submit an Aave Improvement Proposal (AIP) to implement the proposed updates.

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this ARFC.

Copyright

Copyright and related rights waived via CC0

4 Likes
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We have published a Snapshot for the community to vote on, starting in 24h.

We thank you in advance for your participation in the vote.

2 Likes
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AIP-397 has been published for this proposal, with voting starting in less than 24h.

Thank you in advance for your participation in the vote.

1 Like
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This proposal has been executed and the updates are now in effect.

1 Like
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Hello :)
Its alright proposal, but you need to make some changes ASAP!
AMPL borrowing rate was 186.21k%, and now with 100% utilization rate it is 2353%. I’m AMPL supplier, and cant withdraw my AMPL for long ago, cause AMPL is rebasing every day, so people who borrowed it, have more profits than they are were paying 186000% APY. And now with only 2353% they are even less motivated to return borrowed asset. Please, make Borrow APY for AMPL at least how it was 186k%, or better make it even higher, so people like me can at last withdraw their asset, thank you! The whole point was to increase borrowing rate, but for AMPL you drastically decreased it!

Kindly, Quantum ^^

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Hi @QuantumEvolver, we plan on sharing additional proposals to manage the deprecation of AMPL and other V2 assets on Aave, tailored to unique asset characteristics and current borrowing patterns. It’s important to note that a single user, who hasn’t been active on Aave for over a year, accounts for over 62% of the AMPL borrows. Additionally, roughly 25% of the borrows are linked to accounts in bad debt.

1 Like
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Yes, for AMPL you need at least to make it as it was 186k APY for people starting repaying. And better would be double of that, or repaying of this asset will take lot of time otherwise :)

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Hi. Any updates on when changes will be proposed to implement via voting?

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Hi @QuantumEvolver, as mentioned above, we are exploring further IR adjustments for AMPL to encourage repayments. However, any proposed changes will be made only after gaining full clarity on the ongoing inconsistencies of aToken/vToken total supply of AMPL, which are currently under investigation, as pointed out by @bgdlabs here.

We are actively working on gaining a complete understanding of the ongoing issue with the inflated aAMPL token supply. Once we have a clear picture, we’ll be in a position to offer additional recommendations.

1 Like
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Hi :) I researched your website, very nice one, thank you ^^
Have question, how is that possible, that lot of people who have borrowed AMPL, they have zero or close to zero collateral?
изображение
How I understand logic of Aave, they should have not ability to borrow, without collateral, and if health of borrowed asset is going close to zero, collateral should be transformed to ampl and be repayed. So how it is possible that so many people have Health of zero, with active position of borrowed AMPL? :thinking:

1 Like
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The situation you’re describing with borrowers of AMPL having low or zero collateral yet maintaining active loan positions is an indication of positions in bad debt.

You’re right in your understanding of Aave’s mechanisms - borrowers must provide collateral to take out a loan, and their loan remains healthy as long as the collateral value is sufficient. If the health of a loan falls below a certain threshold (health factor below 1), the loan is supposed to be liquidated to repay the debt. However, there can be situations where liquidations don’t occur as intended. This can happen if the liquidation process is not profitable for liquidators due to different reasons such as sharp price declines, high gas fees, and more. As a result, these unliquidated positions contribute to bad debt on the platform, where loans remain outstanding without adequate collateral cover.

2 Likes
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So that means, if debt will never be repaid by borrowers with zero or close to zero collateral, some suppliers will not be able to withdraw their Ampl? Or in such situations Aave protocol takes responsibility? :thinking:

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