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:
- [ARFC] Chaos Labs Risk Parameter Updates - Aave V2 Ethereum - 2023.6.23
- [ARFC] Chaos Labs - Incremental Reserve Factor Updates - Aave V2 Ethereum
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 āmoderateā and an āaggressiveā 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 āModerateā option as the minimum between 10% and the value suggested by the aggressive approach.
ā¢ āAggressiveā
Asset | Current LT | Rec LT | Value Liquidated ($) | Accounts Liquidated |
---|---|---|---|---|
BAL | 55% | 35% | 1,580 | 5 |
BAT | 52% | 38% | 750 | 3 |
CVX | 40% | 34% | 250 | 3 |
DPI | 42% | 22% | 80 | 2 |
ENJ | 60% | 54% | 500 | 4 |
MANA | 62% | 54% | 1,500 | 4 |
REN | 40% | 32% | 1,160 | 3 |
xSUSHI | 60% | 53% | 0 | 0 |
YFI | 55% | 52% | 0 | 0 |
ZRX | 45% | 39% | 0 | 0 |
LINK | 83% | 78% | 2,440 | 10 |
1INCH | 50% | 40% | 56 | 1 |
UNI | 77% | 57% | 500 | 9 |
SNX | 59% | 39% | 650 | 10 |
MKR | 64% | 44% | 140 | 5 |
ENS | 57% | 50% | 45 | 2 |
ā¢ āModerateā
Asset | Current LT | Rec LT | Value Liquidated ($) | 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
- Following community feedback, submit the ARFC for a snapshot vote for final approval.
- 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