[ARFC] OP risk parameters update Aave V3 Optimism Pool

Governance
1

Proposal updated following Risk team feedback.

Title: [ARFC] OP Risk Parameters Update for Aave V3 Optimism Pool

Author: Marc Zeller @marczeller - Aave Chan Initiative

Date: 2023-08-25

Summary

This ARFC proposes the activation of OP as a borrowable asset in the Aave V3 Optimism pool. The aim is to adapt to the maturity of the L2 and attract more suppliers and borrowers, thereby generating new revenue for the protocol.

Motivation

The Aave OP V3 market is one of the Aave V3 L2 deployments, with OP being the native asset of the OP L2. At its inception, the L2 was in its early stages, leading to the onboarding of OP with conservative parameters due to nascent liquidity & infrastructure.

As the L2 has matured, the ACI proposes less conservative parameters for the OP asset. By removing the isolation mode for OP and allowing its borrowing, we anticipate attracting more suppliers who can earn a yield on their OP deposits and new borrowers who can use OP to borrow additional assets. This will also generate new revenue for the protocol.

While the proposed changes are less conservative, they still maintain strict supply, borrow caps, and a conservative interest rate strategy. This ensures that the DAO promotes growth and new opportunities while remaining risk-averse. Based on the collected market data post-implementation, the community will have the opportunity to revisit these parameters at a later stage.

Specification

New Risk Parameters:

Parameter Value
Asset OP
Supply Cap 10M
Borrow Cap 500k
Loan To Value (LTV) 30%
Liquidation Threshold (LT) 40%
Liquidation Penalty (LP) 10%
Liquidation Protocol Fee (LPF) 10%
Stable Borrow Disabled
Base Variable Rate 0%
Slope1 7%
Slope2 300%
Optimal Ratio 45%
Reserve Factor (RF) 20%

Next Steps

  1. Gather community feedback on this ARFC.
  2. If consensus is reached, escalate this proposal to the ARFC Snapshot stage.
  3. If ARFC snapshot outcome is YAE, escalate to AIP stage.

Disclaimer

This proposal is powered by Skyward.

The Aave Chan Initiative is not affiliated with or paid by the Optimism Foundation or any third parties to publish this ARFC.

Copyright

Copyright and related rights waived via CC0.

2 Likes
2

We support the proposal to enable OP as collateral outside of isolation mode with the current risk parameters. We will consider parameter optimizations after assessing usage subsequent to the implementation of this proposal, leveraging our simulation platform.

Additionally, we support enabling OP to be borrowed. However, we advise a more conservative approach by initially setting the borrow cap at 500K OP. This will provide an opportunity to analyze initial borrower tendencies and use cases before considering the adoption of a more aggressive cap.

2 Likes
3

We support the proposed changes. However, we recommend lowering the supply cap to 5m as well due to removal from isolation mode (debt ceiling is $2m), low cap usage (currently ~8%), and current liquidity levels. Lowering supply cap to 5m will put new supply cap usage at 16%.

Screen Shot 2023-08-29 at 7.37.14 PM

4

we will follow these recommendations and will incorporate them at the AIP stage of the proposal if the snapshot outcome is YAE.

5

proposal escalated to Snapshot stage

Voting starts tomorrow.

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