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

**URL:** <https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404>\
**Category:** Governance\
**Created:** [August 9, 2023, 5:05pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404 "2023-08-09T17:05:14Z")\
**Posts on this page:** 14\
**Page:** 1

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**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [August 9, 2023, 5:05pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/1 "2023-08-09T17:05:14Z")

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## 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](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789)
- [[ARFC] Chaos Labs - Incremental Reserve Factor Updates - Aave V2 Ethereum](https://governance.aave.com/t/arfc-chaos-labs-incremental-reserve-factor-updates-aave-v2-ethereum/13766)

### 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](https://governance.aave.com/t/temp-check-ethereum-v2-to-v3-migration/12636), 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](https://creativecommons.org/publicdomain)

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [August 14, 2023, 8:41am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/2 "2023-08-14T08:41:14Z")

</div>

We have published a [Snapshot](https://snapshot.org/#/aave.eth/proposal/0xc5786999ac6d574ca2fb3a3f169be0c38221d73613d4458afa87ab0251f4418a) for the community to vote on, starting in 24h.

Thank you in advance for your participation in the vote.

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [August 14, 2023, 8:41am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/3 "2023-08-14T08:41:49Z")

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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](https://docs.google.com/spreadsheets/d/1Hsx1v1WG402dgaEH2383qCkmgniqnQeEq8x9zxv7ttw/edit?usp=sharing).

---

<div class="post-metadata">

**Author:** ![WintermuteGovernance](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/wintermutegovernance/32/9926_2.png) [@WintermuteGovernance](https://governance.aave.com/u/WintermuteGovernance)\
**Post date:** [August 16, 2023, 12:13am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/4 "2023-08-16T00:13:44Z")

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Thanks @ChaosLabs,

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

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<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [August 17, 2023, 6:33pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/5 "2023-08-17T18:33:50Z")

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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.

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [August 30, 2023, 8:28pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/6 "2023-08-30T20:28:15Z")

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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](https://snapshot.org/#/aave.eth/proposal/0xc5786999ac6d574ca2fb3a3f169be0c38221d73613d4458afa87ab0251f4418a) 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.

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [September 6, 2023, 7:26pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/7 "2023-09-06T19:26:36Z")

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[AIP-315](https://app.aave.com/governance/proposal/?proposalId=315) has been published for this proposal, with voting starting in less than 24h.

Thank you in advance for your participation in the vote.

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [September 6, 2023, 8:16pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/8 "2023-09-06T20:16:27Z")

</div>

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](https://docs.google.com/spreadsheets/d/1ySRryf9jA7kOc2NLELdAEcD64jpvTa6KYpPWal7RxVw/edit#gid=0).

---

<div class="post-metadata">

**Author:** ![lbsblockchain](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/lbsblockchain/32/2371_2.png) [@lbsblockchain](https://governance.aave.com/u/lbsblockchain)\
**Post date:** [September 7, 2023, 5:32am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/9 "2023-09-07T05:32:04Z")

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Hey guys - we need access to the sheet 😊

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<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [September 7, 2023, 11:30am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/10 "2023-09-07T11:30:59Z")

</div>

Permissions were updated, the sheet should now be accessible.

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<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [September 7, 2023, 1:05pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/11 "2023-09-07T13:05:52Z")

</div>

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](https://docs.google.com/spreadsheets/d/1ySRryf9jA7kOc2NLELdAEcD64jpvTa6KYpPWal7RxVw/edit#gid=0).

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [September 8, 2023, 7:28pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/12 "2023-09-08T19:28:30Z")

</div>

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](https://docs.google.com/spreadsheets/d/1ySRryf9jA7kOc2NLELdAEcD64jpvTa6KYpPWal7RxVw/edit#gid=0).

---

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [September 10, 2023, 2:21am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/13 "2023-09-10T02:21:41Z")

</div>

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](https://docs.google.com/spreadsheets/d/1ySRryf9jA7kOc2NLELdAEcD64jpvTa6KYpPWal7RxVw/edit#gid=0).

---

<div class="post-metadata">

**Author:** ![system](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e11637c36f45ffa158f2146f5c19438d46e0824d.svg) [@system](https://governance.aave.com/u/system)\
**Post date:** [October 10, 2023, 2:21am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404/14 "2023-10-10T02:21:45Z")

</div>

Closed on October 10, 2023, 2:21am UTC

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