[ARFC] Chaos Labs Risk Parameter Updates - LTV and LT Alignment

Summary

A proposal to adjust LTs and LTVs for similar assets listed on multiple Aave deployments.

Motivation

As part of Chaos Labs’ regular monitoring of the Aave protocol, we have identified a number of assets with differing LTs and LTVs across deployments. To improve the user experience and optimize the protocol, we propose aligning these parameters across the chains, generally targeting slightly more lenient parameters on Ethereum because of its strong liquidity. For all recommendations to increase LT, our simulations have indicated these changes will create minimal increases in VAR.

AAVE

We recommend increasing the LT on Arbitrum and Optimism to match that on other L2s while decreasing the LT on Avalanche to align with the other deployments. We recommend aligning LTVs at 63% on these networks, slightly lower than on Ethereum.

cbETH

We recommend increasing the LT and LTV for both cbETH markets and aligning them on both Base and Ethereum, given the strong liquidity on both networks.

LINK

We recommend aligning LINK parameters at 71% LT and 66% LTV. We note that Arbitrum’s LT cannot be decreased to 71% without causing significant liquidations, thus we propose a decrease to 75%; we note that the two proposed LT decreases would induce under $1 of liquidations given the current market structure. We may propose additional increases to LINK - Ethereum’s LT and LTV in the future.

rETH

We recommend increasing rETH’s LT on Ethereum, while increasing its LTV on all networks, maintaining slightly more conservative parameters on Arbitrum and Optimism.

USDC

We recommend decreasing the LT on Avalanche and Metis, noting that we cannot reach our target of 78% without large liquidations. We also recommend reducing the LTV of m.USDC on Metis.

USDT

We recommend reducing the LT and LTV of m.USDT on Metis to bring it in line with parameters on other networks.

WETH

We recommend targeting an 83% LT and 80% LTV across all deployments. Our simulations find that the proposed increases generate minimal additional VAR. We note that we are unable to reduce WETH on Arbitrum to the target without significant liquidations; thus, we recommend reducing to 84%.

wstETH

We recommend an LT of 79% and LTV of 75% on all non-Ethereum networks. We note that this involves a small LT reduction on Optimism, inducing just $24 in new liquidations under current market conditions.

Specification

Given these observations, we recommend making the following changes:

Asset Chain Current LT Rec. LT Potential Liqs. Current LTV Rec. LTV
AAVE Arbitrum-main 65.0% 70.0% - 50.0% 63.0%
AAVE Optimism-main 65.0% 70.0% - 50.0% 63.0%
AAVE Polygon-main 70.0% - - 60.0% 63.0%
AAVE Ethereum-main 73.0% - - 66.0% -
AAVE.e Avalanche-main 71.3% 70.0% $0 60.0% 63.0%
cbETH Ethereum-main 77.0% 79.0% - 74.5% 75.0%
cbETH Base-main 74.0% 79.0% - 67.0% 75.0%
LINK Ethereum-main 68.0% 71.0% - 53.0% 66.0%
LINK Arbitrum-main 77.5% 75.0% $0.50 70.0% 66.0%
LINK Optimism-main 75.0% 71.0% $0.30 70.0% 66.0%
LINK Polygon-main 68.0% 71.0% - 53.0% 66.0%
LINK.e Avalanche-main 71.0% - - 56.0% 66.0%
rETH Ethereum-main 77.0% 79.0% - 74.5% 75.0%
rETH Arbitrum-main 74.0% - - 67.0% 69.0%
rETH Optimism-main 74.0% - - 67.0% 69.0%
USDbC Base-main 78.0% - - 75.0% -
USDC Arbitrum-main 78.0% - - 75.0% -
USDC Optimism-main 78.0% - - 75.0% -
USDC Polygon-main 78.0% - - 75.0% -
USDC Ethereum-main 78.0% - - 75.0% -
USDC Base-main 78.0% - - 75.0% -
USDC Avalanche-main 81.0% 79.5% $511 75.0% -
USDC Gnosis-main 78.0% - - 75.0% -
USDC BNB-main 78.0% - - 75.0% -
USDC Scroll-main 78.0% - - 75.0% -
m.USDC Metis-main 85.0% 83.0% $21.90 80.0% 75.0%
USDC.e Arbitrum-main 78.0% - - 75.0% -
USDC.e Optimism-main 80.0% 78.5% $62 75.0% -
USDC.e Polygon-main 78.0% - - 75.0% -
USDC.e Gnosis-main 78.0% - - 75.0% -
USDT Arbitrum-main 78.0% - - 75.0% -
USDT Optimism-main 78.0% - - 75.0% -
USDT Polygon-main 78.0% - - 75.0% -
USDT Ethereum-main 78.0% - - 75.0% -
USDt Avalanche-main 78.0% - - 75.0% -
USDT BNB-main 78.0% - - 75.0% -
m.USDT Metis-main 80.0% 78.0% $11.20 77.0% 75.0%
WETH Arbitrum-main 85.0% 84.0% $241.90 82.5% 80.0%
WETH Optimism-main 82.5% 83.0% - 80.0% -
WETH Polygon-main 82.5% 83.0% - 80.0% -
WETH Ethereum-main 83.0% - - 80.5% -
WETH Base-main 83.0% - - 80.0% -
WETH Metis-main 82.5% 83.0% - 80.0% -
WETH Gnosis-main 78.0% 83.0% - 75.0% 80.0%
WETH Scroll-main 78.0% 83.0% - 75.0% 80.0%
ETH BNB-main 82.5% 83.0% - 80.0% -
WETH.e Avalanche-main 82.5% 83.0% - 80.0% -
wstETH Ethereum-main 81.0% - - 78.5% -
wstETH Arbitrum-main 79.0% - - 70.0% 75.0%
wstETH Optimism-main 80.0% 79.0% $24 71.0% 75.0%
wstETH Polygon-main 79.0% - - 70.0% 75.0%
wstETH Base-main 76.0% 79.0% - 71.0% 75.0%
wstETH Gnosis-main 78.0% 79.0% - 75.0% -
wstETH Scroll-main 78.0% 79.0% - 75.0% -

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

1 Like

We support the proposed changes to the LT and LTV parameters across various deployments.

Regular housekeeping, such as the reassessment of underutilized assets’ caps and uniformization of parameters across chains, is desirable, improving user experience, protocol safety, and performance.

The @ChaosLabs team is doing an excellent job with their regular monitoring and proactive approach to optimizing the Aave protocol. Most important with these marginal changes is the impact on Value at Risk (VaR), which is a proxy for potential liquidations and adverse effects on the current user base. The data provided here suggest that the proposed changes will have a negligible impact on VaR.

1 Like

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

We thank you in advance for your participation in the vote.