Gauntlet Analysis and Recommendation
We will continue to monitor and update on the situation, but at this time, we do not have any explicit recommendation for the protocol. Given the conservative parameters on Kyber (1M isolated debt ceiling, borrow cap of 650k KNC, and LT of 40%) and the sufficient price discovery in the token over the last 12 hrs (60% of market cap traded), the data suggests that manipulation and exploit on the KNC token on Aave is unlikely to be profitable to any exploiter. We will continue to monitor any developments.
Some community members have asked us about the risk of allowing extra deposits (not freezing KNC). On this topic - the max potential short position that could be taken on would be around 450k USD (at current price and assuming price of KNC will go down). Given that over 40M KNC has traded since the exploit started, additional deposits to allow for more shorting on Aave V3 Ethereum is not a high-priority threat.
Summary
- If the community wishes to freeze KNC, they may of course do so out of an abundance of caution. However, Gauntlet’s analysis shows that the additional risk-mitigating impact of doing so is not substantial. The KNC market on Aave has already been parameterized to cap the downside to Aave.