[ARFC] - Chaos Labs Risk Parameter Updates - CRV Aave V2 Ethereum - 2023.07.10

Governance
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Simple Summary

A proposal to reduce Liquidation Threshold (LT) and Loan-To-Value (LTV), for CRV on Aave V2 Ethereum.

Motivation

Following our recommendations to decrease Aave’s exposure to CRV on V2 Ethereum here, we propose a series of LT and LTV reductions. The first reduction in this cycle of LT updates was executed on July 3rd, 2023. Since the initial post proposing to reduce the LTs for CRV, we’ve observed over 12M CRV withdrawn from V2 Ethereum.

Given the current conditions and protocol usage, we propose 2 options for the community to vote on:

  1. “Aggressive” (Chaos recommended) - 6% reduction. This option suggests an LT configuration that optimizes the reduction 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.
  2. “Moderate” - 3% reduction. This option is aligned with the previous reduction and the Risk-Off Framework previously approved by the community, with a reduction of up to 3% in any given AIP.

In the table below, we share data to quantify and visualize the effect of the recommended reductions on protocol users.

Option Liquidation Threshold Accounts Liquidated Liquidation Value
Moderate 52 3 $46
Aggressive 49 5 $116

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.

Specification

Asset Parameter Current Value Recommendation Change
CRV LT 55 49 -6%
CRV LTV 49 43 -6%

Recommended LT and LTV 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

3 Likes
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We’re supportive of the aggressive option.

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We have published a Snapshot for the community to vote on. Voting starts in 24h.

Thank you in advance for your participation in the vote.

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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.

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AIP-280 has been published for this proposal.

Thank you in advance for your participation in the vote.

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As of today, no accounts will be eligible for liquidation following the proposed changes.

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As of today, no accounts will be eligible for liquidation following the proposed changes.

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As of today, no accounts will be eligible for liquidation following the proposed changes.

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As of today, no accounts will be eligible for liquidation following the proposed changes.

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Due to market instability, we think it is prudent not to make updates to the CRV market at this time. We are looking into postponing the execution of this proposal via guardian or loss of proposition power.

1 Like
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The AIP has been canceled.
We will reevaluate once the CRV market stabilizes and update the community as necessary.

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We have resubmitted this AIP for community vote.

AIP-292 has been published and voting starts in 24h.

Thank you in advance for your participation in the vote.

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1 Like
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The AIP has passed and can be executed in less than 24h.

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The AIP has passed and has been successfully executed on-chain.

Following the vote on the CRV V2 Ethereum Deprecation Plan, we aim to publish our next iteration of LT reductions next week, following the framework described here.

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