# \[ARFC\] Chaos Labs Risk Parameter Updates - Aave V2 Ethereum - 2023.6.23 **URL:** \ **Category:** Governance\ **Created:** [June 23, 2023, 6:41pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789 "2023-06-23T18:41:18Z")\ **Posts on this page:** 12\ **Page:** 1
**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:** [June 23, 2023, 6:41pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/1 "2023-06-23T18:41:18Z")
## Simple Summary A proposal to reduce the Liquidation Threshold (LT) and Loan-To-Value (LTV) and increase Liquidation Bonus (LB) and Reserve Factors (RF) for eleven (11) frozen collateral assets on Aave V2 Ethereum. ## Motivation In line with our ongoing commitment to reduce the potential risks associated with V2 markets, we suggest a phased reduction of the **frozen** V2 markets, comprising low-to-medium cap assets with limited liquidity. The following proposal is the first step to reduce capital efficiency across V2 collateral assets, which will be followed up with more detailed plans for additional parameter updates for these assets. ### 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 a 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, as can be seen in the supporting graphs [here](https://chaos-labs.notion.site/Supporting-Data-ARFC-Chaos-Labs-Risk-Parameter-Updates-Aave-V2-Ethereum-2023-6-23-338308b47db34c30a92204805f2a1972?pvs=4). - 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% or the value suggested by the aggressive approach. - “Aggressive” | Asset | Current LT | Rec LT | Value Liquidated | Accounts Liquidated | | --- | --- | --- | --- | --- | | BAL | 70% | 55% | $60 | 5 | | BAT | 70% | 52% | $610 | 6 | | CVX | 45% | 40% | 0 | 1 | | DPI | 70% | 42% | 0 | 0 | | ENJ | 67% | 60% | $300 | 4 | | KNC | 70% | 1% | $1,790 | 7 | | MANA | 75% | 62% | $500 | 5 | | REN | 60% | 40% | $1,800 | 6 | | xSUSHI | 65% | 60% | 0 | 0 | | YFI | 65% | 55% | $500 | 2 | | ZRX | 65% | 45% | $500 | 5 | - “Moderate” | Asset | Current LT | Rec LT | Value Liquidated | Accounts Liquidated | | --- | --- | --- | --- | --- | | BAL | 70% | 60% | 0 | 2 | | BAT | 70% | 60% | $200 | 3 | | CVX | 45% | 40% | 0 | 1 | | DPI | 70% | 60% | 0 | 0 | | ENJ | 67% | 60% | $300 | 4 | | KNC | 70% | 60% | $210 | 1 | | MANA | 75% | 65% | $400 | 4 | | REN | 60% | 50% | $300 | 4 | | xSUSHI | 65% | 60% | 0 | 0 | | YFI | 65% | 55% | $500 | 2 | | ZRX | 65% | 55% | 0 | 0 | In the tables below, we share data to quantify the effect of the recommended reductions on protocol users: | | Value liquidated | Accounts liquidated | | --- | --- | --- | | moderate | $1,970 | 20 | | aggressive | $4,900 | 34 | _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._ ### Reduce LTV to zero Lowering the Loan-to-Value (LTV) ratio to zero can potentially curb borrowing by less sophisticated users. It’s important to note that due to V2’s design, users can bypass the LTV limit to borrow up to the LT value. ### RF Increase Progressively increasing the reserve factors diminishes the interest rate for providing these assets and lowers the suppliers’ incentive to supply the assets. In this proposal, we suggest an initial hike of 10% for all inactive assets. ### LB Increase We recommend increasing the LB for all proposed assets (excluding BAL and CVX) to 10% to better incentivize liquidations and accommodate for low liquidity for the given assets. ## Specification | Asset | Cur LT | Rec LT\* | Current LTV | Rec LTV | Current RF | Rec RF | Current LB | Rec LB | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | BAL | 70% | 55% | 65% | 0 | 20% | 30% | 8% | 8% | | BAT | 70% | 52% | 65% | 0 | 20% | 30% | 7.5% | 10% | | CVX | 45% | 40% | 35% | 0 | 20% | 30% | 8.5% | 8.5% | | DPI | 70% | 42% | 65% | 0 | 20% | 30% | 7.5% | 10% | | ENJ | 67% | 60% | 60% | 0 | 20% | 30% | 6% | 10% | | KNC | 70% | 1% | 60% | 0 | 20% | 30% | 10% | 10% | | MANA | 75% | 62% | 61.5% | 0 | 35% | 45% | 7.5% | 10% | | REN | 60% | 40% | 55% | 0 | 20% | 30% | 7.5% | 10% | | xSUSHI | 65% | 60% | 50% | 0 | 35% | 45% | 8.5% | 10% | | YFI | 65% | 55% | 50% | 0 | 20% | 30% | 7.5% | 10% | | ZRX | 65% | 45% | 55% | 0 | 20% | 30% | 7.5% | 10% | \*Recommended LT values will be finalized after the Snapshot between the aggressive and moderate options ## 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) ---
**Author:** ![MarcZeller](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/marczeller/32/7124_2.png) [@MarcZeller](https://governance.aave.com/u/MarcZeller)\ **Post date:** [June 26, 2023, 11:11am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/2 "2023-06-26T11:11:04Z")
we are supportive of this proposal with the “aggresive option”. ---
**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:** [June 26, 2023, 2:21pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/3 "2023-06-26T14:21:24Z")
The proposal was updated to include recommendations for ZRX. ---
**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:** [June 28, 2023, 11:23am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/4 "2023-06-28T11:23:13Z")
We have published a [Snapshot](https://snapshot.org/#/aave.eth/proposal/0x2d7bf95ae2f77992afdc1d507d31ff71bff89022e579e3bb2d01b770b77c0d2b) for the community to vote on. Voting starts in 24h! Thank you in advance for your participation in the vote. ---
**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:** [July 2, 2023, 2:35pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/5 "2023-07-02T14:35:10Z")
The “Aggressive” option has been chosen by the community in the Snapshot vote. We’ve updated the proposal to reflect this and are preparing the AIP accordingly. We thank the community for their participation in this vote. ---
**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:** [July 12, 2023, 11:44am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/6 "2023-07-12T11:44:10Z")
[AIP-272](https://app.aave.com/governance/proposal/?proposalId=272) has been published and voting starts in 24h. Thank you in advance for your participation in the vote. > **[Aave - Open Source Liquidity Protocol](https://app.aave.com/governance/proposal/?proposalId=272)** > > Aave is an Open Source Protocol to create Non-Custodial Liquidity Markets to earn interest on supplying and borrowing assets with a variable or stable interest rate. The protocol is designed for easy integration into your products and services. ---
**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:** [July 12, 2023, 11:45am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/7 "2023-07-12T11:45:52Z")
As of today, 42 total accounts amounting to ~$10K 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/1rettQJ8WlCuqblTgtO43uOR1lHZJgWBsIxwjo8Vb3Pg/edit#gid=0). ---
**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:** [July 13, 2023, 4:50pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/8 "2023-07-13T16:50:47Z")
As of today, 41 total accounts amounting to ~$10K 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/1rettQJ8WlCuqblTgtO43uOR1lHZJgWBsIxwjo8Vb3Pg/edit#gid=0). ---
**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:** [July 14, 2023, 3:14pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/9 "2023-07-14T15:14:49Z")
As of today, 24 total accounts amounting to ~$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/1rettQJ8WlCuqblTgtO43uOR1lHZJgWBsIxwjo8Vb3Pg/edit#gid=0). ---
**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:** [July 15, 2023, 8:53pm UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/10 "2023-07-15T20:53:13Z")
As of today, 41 total accounts amounting to ~$7K 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/1rettQJ8WlCuqblTgtO43uOR1lHZJgWBsIxwjo8Vb3Pg/edit#gid=0). ---
**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:** [July 18, 2023, 9:29am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/11 "2023-07-18T09:29:35Z")
The AIP has passed and has been successfully executed on-chain ---
**Author:** ![system](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e11637c36f45ffa158f2146f5c19438d46e0824d.svg) [@system](https://governance.aave.com/u/system)\ **Post date:** [August 17, 2023, 9:30am UTC](https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-6-23/13789/12 "2023-08-17T09:30:30Z")
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