[ARFC] Gauntlet recommendation on TUSD for Aave v2 Ethereum

Risk
1

Simple Summary

Gauntlet cannot quantify risk associated with centralized stablecoins and regulatory concerns. In light of this, we provide a couple options to the community to gauge preference and thoughts around TUSD. If the community views TUSD as having excess counterparty risk, we recommend iteratively lowering LT, LTV and/or freezing TUSD supply to begin offboarding TUSD.

Gauntlet has observed unusual borrowing behavior for TUSD on Aave v2 the past week. Utilization has hit 98% on multiple occasions and has remained constant over 90% from June 9 - June 15, coming down to 74% as of today June 16.

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On June 10, TUSD traded down to $0.996, it was announced that TUSD has paused minting via Prime Trust.

Should TUSD lose its peg, $0.96 is the first TUSD price at which we see small amount of liquidations (so -4%), and roughly $700k liquidations at $0.90. Data can be found on Gauntlet’s dashboard here.

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TUSD has 22M supplied and 20M borrowed, with the majority of the supply having > 1.15 collateral ratio. The majority of the TUSD collateral with HF < 1.5 support stablecoin borrowing, with one account borrowing ~$500k WETH at a 1.35 HF.

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Again, to reiterate, Gauntlet cannot quantify risk associated with centralized stablecoins and regulatory concerns. In light of this, we wanted to gauge preference and thoughts around TUSD, and if necessary, provide some options on how the community can derisk TUSD should they view the centralization risk to be excessive.

Option 1: iteratively lowering the LT of TUSD to 77.5%, LTV to 75%. This will begin removing debt that TUSD collateral supports, which can help reduce risk of insolvencies if TUSD depeg occurs. However, this may impact user experience, as roughly $1500 in supply would be liquidated.

Option 2: Freeze TUSD supply. This will immediately upper bound the borrowing power of TUSD collateral, which can help reduce insolvency risk during depeg, but will impact users looking to enter the TUSD market to gain interest.

Next steps
Welcome community feedback and initiate Snapshot vote.

5 Likes
2

We put the snapshot up here. Voting begins in 24 hours and lasts for 3 days.

3

Hello, the ARFC failed to reach quorum by a thin margin (316k out of 320k)

The ACI is supportive of a re-run by gauntlet. as vote was held during a summer weekend and participation was not very high.

4

Currently, we don’t perceive substantial market risk associated with TUSD, making counterparty risk the primary focus of the conversation.

If the community decides to decrease the protocol’s TUSD exposure, we suggest implementing a freeze on the asset as a potent risk management method. This strategy can be undone by the community once there’s more clarity on recent events or a shift in risk appetite.

5

Given that a total of 360k votes have been cast, we will move forward with AIP to reduce LT. We also agree that a freeze is a valuable tool and will do a re-run of a Snapshot vote to get the community’s preference for freeze, given the previous holiday weekend voting.

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Hi @Gauntlet please clarify on what constitututes a quorum for Snapshot.

Mark has stated no quorum was met. As well as aave governance discord stated that quorum is met if the top vote reaches 320k.

If thats the case why is an AIP being prepared without meeting the requirements?

Even if so why should snapshot be reran just to fulfill the request of a single individual who wanted a different outcome?

I assume AAVE is fully decentralised and does not belong to any country? So can we stop assuming that everyone has to conform to special holidays in USA? We dont see any special EU holidays granted such privileges.

Because this is screaming centralisation and moral hazard to me

3 Likes
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Hi @fumoffuXx There were 316k votes for option 1 (lower LT & LTV) and a total of 360k votes, which is over the 320K quorum. Ideally, option 1 would need 4K extra votes, but we aim to be proactive on risk management here with moving forward to an on-chain proposal. The community may still vote No on the AIP— that is up to the community, but at least we want to give them the chance to express their vote on-chain.

1 Like
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@Gauntlet Thanks for your reply, it still does not answer my question. is there a mismatch with parties not having a common understanding of a quorum, to you its total votes above 320k to others is top vote over 320k.

Can we specify and agree to a common quorum definition? And if no quorum is met, should the AIP move forward?

In addition, shouldn’t the 3rd party risk assessors be in consensus before suggesting any risk parameter modifications?

Apologies in making your life difficult but this are legit concerns.

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Hello, the intention behind the ARFC and TEMP CHECK framework is to require a minimum of 320k YAE votes AND an 80k differential in favor of the proposal, not simply 320k participation. This reflects the operational mechanics of the Aave governance smart contract. Snapshots are not designed to lower the threshold for a YAE outcome; their purpose is to be inclusive, accommodating all holders irrespective of the chain they’re on and their financial capabilities. They also serve as filters to manage the volume of on-chain AIPs.

However, upon reviewing the language used in various voted-upon frameworks, it’s clear that the phrasing is, at best, ambiguous. As a DAO, we should strive for more precise and robust definitions.

In response to this, the ACI plans to publish several proposals in the immediate future to clarify these frameworks and governance guidelines.

Until these new guidelines are in place, we should avoid applying them retroactively. Given the current ambiguity in definitions, Gauntlet should be granted the benefit of the doubt if they so desire. And the ACI will not oppose an escalation of this proposal.

1 Like
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i would like to disagree on your logic of allowing decisions to be perform with ambiguity, this is a very slippery slope.

the responses does not address the consensus amongst the third party risk assessors.

2 Likes
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Your perspective is appreciated. While each jurisdiction has its unique doctrines, the general principle across many is that retroactivity is usually discouraged, and ambiguity tends to favor actors like Gauntlet in such situations. This is typically designed to prevent arbitrary decisions and the so-called “slippery slopes”.

Regardless, the ACI has published clearer guidelines ARFC to help avoid such situations in the future.

3 Likes
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Alright appreciate the reply and response

2 Likes
13

We put up the snapshot for freezing TUSD here. Voting begins in 8 hours and lasts for 3 days.

3 Likes
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As an update, as of 2023-06-28, the following 3 accounts will become liquidatable if the proposed parameter changes are implemented.

Address Health Factor Health Factor With New Parameters Total Borrows (USD) Total Supply (USD) Asset(s) Borrowed Asset(s) Supplied
0x4fe27a3898f69f35806e916a410b96d88f727abb 1.013946 0.952495 888.470643 1091.952757 USDT, USDC, TUSD TUSD
0x7c384cc444ac2ca66dd778f757242919013c1ab7 1.036963 0.974117 78.398214 98.540663 TUSD TUSD
0x994f21ad9f08e71557001c5edcc8bb44bcd00f59 1.010672 0.949419 423.256861 518.513647 USDT TUSD
15

The AIP for lowering TUSD LT/LTV has been published here.

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As an update, as of 2023-06-30, the following 4 accounts will become liquidatable if the proposed parameter changes are implemented.

Address Health Factor Health Factor With New Parameters Total Borrows (USD) Total Supply (USD) Asset(s) Borrowed Asset(s) Supplied
0x4fe27a3898f69f35806e916a410b96d88f727abb 1.014081 0.952622 889.762779 1093.687106 USDC, USDT, TUSD TUSD
0x7c384cc444ac2ca66dd778f757242919013c1ab7 1.036292 0.973486 78.573597 98.697175 TUSD TUSD
0x8cb3e94274c27d5bcd01215edf823de49c48c56d 1.011898 0.961913 99.958241 121.307420 TUSD TUSD
0x994f21ad9f08e71557001c5edcc8bb44bcd00f59 1.011841 0.950518 423.439117 519.337199 USDT TUSD
1 Like
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As an update, as of 2023-07-02, the following 5 accounts will become liquidatable if the proposed parameter changes are implemented.

Address Health Factor Health Factor with New Parameters Total Borrows (USD) Total Supply (USD) Assets Borrowed Assets Supplied
0x4fe27a3898f69f35806e916a410b96d88f727abb 1.013957 0.952505 890.743712 1094.758520 [USDT, TUSD, USDC] [TUSD]
0x7c384cc444ac2ca66dd778f757242919013c1ab7 1.035471 0.972716 78.712877 98.793862 [TUSD] [TUSD]
0x89426d4e36ec07738e8236acd43090dc9d1152fe 1.045709 0.982333 193.052777 244.699534 [WETH] [TUSD]
0x8cb3e94274c27d5bcd01215edf823de49c48c56d 1.010917 0.960972 100.135428 121.405653 [TUSD] [TUSD, USDC]
0x994f21ad9f08e71557001c5edcc8bb44bcd00f59 1.012651 0.951279 423.514820 519.845960 [USDT] [TUSD]
2 Likes