[ARFC] Chaos Labs Risk Parameter Updates - Aave V2 Ethereum - 2023.08.09

Simple Summary

A proposal to:

(1) Reduce the Liquidation Threshold (LT) and Loan-To-Value (LTV) for sixteen (16) frozen collateral assets on Aave V2 Ethereum.

(2) Increase Reserve Factors for all collateral assets on Aave V2 Ethereum.

Motivation

In line with our ongoing commitment to reducing the potential risks associated with V2 markets and promoting migration to V3, we suggest a phased wind-down of the frozen V2 markets. The following proposal is part of a series of proposals to reduce capital efficiency across V2 collateral assets.

The previous iteration of proposals:

LT Reductions

Implementing a gradual decrease in LTs effectively diminishes the borrowing power for the existing markets. This proposal offers the community two alternatives - a “moderate” and an “aggressive” approach for the preliminary LT reduction.

  • Aggressive (Chaos Recommendation) - This option suggests an LT configuration that optimizes reductions without significantly increasing the number of accounts eligible for liquidation. The proposed values are set at a margin of 8% from the closest LT figure, which would trigger more substantial liquidations.
  • Moderate - If the community leans towards a more tempered approach of slowly reducing the Liquidation Thresholds, we propose limiting the LT decrease to a maximum of 10%. Hence, we define the “Moderate” option as the minimum between 10% and the value suggested by the aggressive approach.

• “Aggressive”

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated
BAL 55% 35% 1,580 5
BAT 52% 38% 750 3
CVX 40% 34% 250 3
DPI 42% 22% 80 2
ENJ 60% 54% 500 4
MANA 62% 54% 1,500 4
REN 40% 32% 1,160 3
xSUSHI 60% 53% 0 0
YFI 55% 52% 0 0
ZRX 45% 39% 0 0
LINK 83% 78% 2,440 10
1INCH 50% 40% 56 1
UNI 77% 57% 500 9
SNX 59% 39% 650 10
MKR 64% 44% 140 5
ENS 57% 50% 45 2

• “Moderate”

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated
BAL 55% 45% 1,120 3
BAT 52% 42% 80 2
CVX 40% 34% 250 3
DPI 42% 32% 0 0
ENJ 60% 54% 500 4
MANA 62% 54% 1,500 4
REN 40% 32% 1,160 3
xSUSHI 60% 53% 0 0
YFI 55% 52% 0 0
ZRX 45% 39% 0 0
LINK 83% 78% 2,440 10
1INCH 50% 40% 56 1
UNI 77% 67% 290 6
SNX 59% 49% 85 3
MKR 64% 54% 16 2
ENS 57% 50% 45 2

In the tables below, we share data to quantify the effect of the recommended reductions on protocol users:

Value liquidated Accounts liquidated
Aggressive $10,100 58
Moderate $8,580 43

As Liquidation Threshold reductions may lead to user accounts being eligible for liquidations upon their approval, we want to clarify the full implications to the community at each step. Chaos Labs will publicly communicate the planned amendments and list of affected accounts leading to the on-chain execution.

LTV Decrease

For assets where the LTV is not 0, we recommend maintaining the same buffer as the current configuration.

RF Increase

In line with our V2 to V3 migration plan, we propose another iteration of RF increases on Aave V2 Ethereum. By progressively increasing the reserve factors, the interest rate for supplying these assets on V2 will be increasingly less attractive, thus encouraging suppliers to transition positions to V3. In this proposal, we suggest an increase of 5% for all V2 collateral assets.

Specification

Frozen Assets:

Asset Cur LT Rec LT Current LTV Rec LTV Current RF Rec RF
BAL 55% 35% 0 0 30% 35%
BAT 52% 40% 0 0 30% 35%
CVX 40% 35% 0 0 30% 35%
DPI 42% No Change 0 0 30% 35%
ENJ 60% 52% 0 0 30% 35%
MANA 62% 54% 0 0 45% 50%
REN 40% 32% 0 0 30% 35%
xSUSHI 60% 57% 0 0 45% 50%
YFI 55% 50% 0 0 30% 35%
ZRX 45% 42% 0 0 30% 35%
LINK 83% No Change 70% No Change 25% 30%
1INCH 50% 40% 40% 30% 25% 30%
UNI 77% 70% 65% 58% 25% 30%
SNX 59% 49% 46% 36% 40% 45%
MKR 64% 50% 59% 45% 25% 30%
ENS 57% 52% 47% 42% 25% 30%

Unfrozen Assets

Asset Current RF Recommended RF
FRAX 25% 30%
GUSD 15% 20%
LUSD 15% 20%
sUSD 25% 30%
USDC 15% 20%
USDP 15% 20%
USDT 15% 20%
CRV 25% 30%
WBTC 25% 30%
ETH 20% 25%

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

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

Thank you in advance for your participation in the vote.

As of today, the following accounts and values are at risk of liquidation following the proposed changes.

Value liquidated Accounts liquidated
Aggressive $16,000 66
Moderate $13,500 52

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet.

Thanks @ChaosLabs,

Given there isn’t a significant difference between ‘value liquidated’ across aggressive and moderate we are supportive of the aggressive changes.

Given market volatility over the past few days, the impact of both the aggressive and moderate options on UX has intensified.
As of today, the following accounts and values are at risk of liquidation following the proposed changes.

Value liquidated Accounts liquidated
Aggressive $123,170 68
Moderate $103,380 51

We are reevaluating the proposal and will update the community on next steps.

1 Like

We recommend the following LT reductions after evaluating user positions and current market conditions.

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated
BAL 55% 35% 450 2
BAT 52% 40% 606 2
CVX 40% 35% 225 3
ENJ 60% 52% 306 3
MANA 62% 54% 55 1
REN 40% 32% 480 1
xSUSHI 60% 57% 0 0
YFI 55% 50% 363 2
ZRX 45% 42% 0 0
1INCH 50% 40% 0 0
UNI 77% 70% 75 2
SNX 59% 49% 58 3
MKR 64% 50% 243 4
ENS 57% 52% 296 3
Total Value liquidated Total Accounts liquidated
Aggressive $8,320 24

As these recommendations are more conservative than the “Aggressive” option which the community has previously voted on in the Snapshot vote, and to reduce governance overhead, we intend on moving directly to AIP, barring any community objections.

Please note that we have omitted LINK and DPI from this proposal, as reducing their LTs would put larger positions at risk of liquidation.

We have updated the Specification section in the original proposal to reflect the final recommendations of this proposal.

1 Like

AIP-315 has been published for this proposal, with voting starting in less than 24h.

Thank you in advance for your participation in the vote.

As of today, 33 total accounts amounting to ~$13.6K are at risk of liquidation following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

1 Like

Hey guys - we need access to the sheet :blush:

Permissions were updated, the sheet should now be accessible.

As of today, 27 total accounts amounting to ~$6.5K are at risk of liquidation following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

As of today, 35 total accounts amounting to ~$15.75K are at risk of liquidation following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

As of today, 32 total accounts amounting to ~$5.3K are at risk of liquidation following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .