[ARFC] Recommendation to freeze and set LTV to 0 on low-cap Aave v3 Polygon collateral assets

Simple Summary

Gauntlet and Chaos Labs propose to freeze and set LTV to 0 for DPI, BAL, CRV, and SUSHI on Aave v3 Polygon.

Motivation

DPI

DPI’s contribution to the protocol’s reserve growth is minimal, both from DPI borrows and assets borrowed against it. With $17.59k borrowed in DPI at an average Borrow APY of 2.85% and a 35% Reserve Factor, the annual reserve growth for DPI is just $175. Additionally, DPI’s Collateral Usage is only $25.4k, collateralized mostly against stablecoin borrows. Assuming a 7% stablecoin Borrow APY and a 10% reserve factor, this results in an annual reserve growth of $178 from stablecoins borrowed against DPI.

The primary reason to keep smaller-cap assets like DPI is to offer a diverse range of assets to Aave’s users. However, if prioritizing capital efficiency is more important to the community, we can start deprecating DPI and similar assets.

Reducing DPI’s LTV to 0 will not immediately affect the current DPI suppliers who are utilizing 89.5% of the supply cap. However, it will hinder their ability to increase their existing borrows up to the current 20% LTV and hinder the ability for future DPI suppliers to borrow against DPI. This adjustment dissuades but does not prevent users from supplying DPI. It also does not stop users from borrowing DPI, which has a 20% borrow cap utilization. Reducing the supply cap and borrow cap to 0 would ensure no future DPI suppliers and borrowers are able to join the protocol. Freezing DPI will also prevent any future DPI supply and borrows and rate switching.

We recommend freezing DPI to prevent any future DPI supply / borrows, setting the LTV to 0 to hinder existing suppliers’ ability to increase their existing borrows up to the current 20% LTV, and then moving forward with the collateral asset delisting process, including reducing the LT and updating the IR curve.

BAL, CRV, SUSHI

Similar to DPI ($25.4k Collateral Usage), other low-cap assets we recommend freezing and reducing LTV to 0 are:

Collateral Asset Collateral Usage
BAL $69.7k
CRV $235.8k
SUSHI $97.4k

These assets also contribute minimally to the protocol’s reserve growth.

Specification

Freeze and set LTV to 0 for DPI, BAL, CRV, and SUSHI on Aave v3 Polygon.

Next Steps

Welcome community feedback and will put up snapshots for each of the collateral asset next week.

Disclaimer

Gauntlet has not received any compensation from any third-party in exchange for recommending any of the actions contained in this proposal.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.

6 Likes

These assets also contribute minimally to the protocol’s reserve growth.

Could you provide numbers for these as well? With DPI and probably also SUSHI on a quick look seems easy to agree with this post.

For BAL and CRV I would have assumed the reserve growth to be more relevant due to decent borrow usage. Gut feeling would be that ltv0 is reasonable as the collateral risk is unnecessary especially if no-one is using it.

Freezing i’m not so sure as borrowing these assets apparently is a thing and the DAO in the past acquired the assets for some strategies.

3 Likes

Here are the numbers for the other assets:

Asset Total Borrows ($) Estimated Protocol Rev. ($) Borrowed Against ($) Estimated Protocol Rev. ($)
DPI 15,600 150 24,000 <170
BAL 300,000 7,200 70,000 <500
CRV 38,000 530 235,000 <1,700
SUSHI 80,000 640 100,000 <750

To allow the community to express their opinions on each asset individually, the proposal will be divided into distinct Snapshot votes for each asset, allowing for more detailed and granular decision-making by the community.

2 Likes

As an update, snapshots for freezing and setting LTV to 0 for DPI, BAL, CRV, SUSHI on v3 Polygon have passed. The AIP has been published here.

1 Like

So there are going to be separate votings specific for each asset?

I don’t quite get it. All 4 assets have vanished, is that temporary or setlled now because of the voting?
Imo we really shouldn’t remove “traditional” assets like CRV or BAL, even if they don’t really add much to protocol revenue. What harm does it do to keep them? Don’t forget old-school users and also, as was mentioned, keeping a broader portfolio online, that is important. Thanks!