[ARFC] V2 Ethereum and Polygon LT Reductions - 12.04.2023

Governance
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Simple Summary

A proposal to reduce Liquidation Thresholds on Aave V2 Ethereum and Polygon.

Motivation

Following the v2 deprecation framework, Chaos Labs and Gauntlet advise implementing the subsequent parameter changes to the frozen assets on Aave v2 Ethereum and Polygon

As Liquidation Threshold reductions may lead to user accounts being eligible for liquidations upon their approval, we want to clarify the full implications to the community at each step. We will publicly communicate the planned amendments and list of affected accounts leading to the on-chain execution.

Gauntlet Analysis

Aave v2 Ethereum

Following the deprecation schedule, we recommend the following conservative and aggressive parameter changes to frozen assets on Aave v2 Ethereum. The conservative recommendations aim to liquidate no assets, and the aggressive recommendations aim to limit the maximum amount liquidated per asset to $6000.

Out of 25 frozen assets, there are already 5 assets (BUSD, FIL, RAI, AMPL and UST) with LT of 0, and 6 assets (BAL, 1INCH, SUSHI, BAT, FEI and KNC) with LT of 0.01.

Conservative:

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated Cur HF New HF Needed HF
CRV 0.3 0.26 0 0 11.1 11.09 1.08
CVX 0.24 0.19 0 0 1.68 1.63 1.05
MANA 0.29 0.25 0 0 2.1 2.09 1.06
MKR 0.28 0.27 0 0 1.59 1.59 1.08
REN 0.18 0.13 0 0 1.69 1.69 1.12
UNI 0.55 0.52 0 0 1.87 1.87 1.07
YFI 0.32 0.3 0 0 2.32 2.32 1.08

Aggressive:

Under these recommendations, each asset will see less than $6,000 of its collateral liquidated. In total, this will affect 53 accounts, leading to a cumulative liquidation of $28,189.93 in collateral value.

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated Cur HF New HF Needed HF
CRV 0.3 0.24 252.24 2 11.1 11.09 1.08
CVX 0.24 0.19 0 0 1.68 1.63 1.05
DPI 0.05 0.01 89.95 1 1.71 1.69 1.05
ENJ 0.44 0.42 317.25 1 1.66 1.66 1.06
ENS 0.38 0.31 5653.83 9 1.37 1.36 1.05
LINK 0.8 0.76 5929.98 6 2.21 2.16 1.07
MANA 0.29 0.23 452.75 3 2.1 2.08 1.06
MKR 0.28 0.24 141.69 2 1.59 1.58 1.08
REN 0.18 0.01 4508.68 6 1.69 1.68 1.12
SNX 0.3 0.19 5962.36 7 1.93 1.92 1.1
UNI 0.55 0.4 4129.92 14 1.87 1.85 1.07
YFI 0.32 0.3 0 0 2.32 2.32 1.08
ZRX 0.24 0.14 751.28 2 1.91 1.46 1.29

AAVE V2 Polygon

We recommend the following conservative and aggressive parameter changes to assets on Aave v2 Polygon. The conservative recommendations aim to liquidate no assets, and the aggressive recommendations aim to limit the maximum amount liquidated per asset to $6000.

Conservative:

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated New HF Needed HF
BAL 0.45 0.41 0 0 1.69 1.07
CRV 0.45 0.37 0 0 1.72 1.1
DPI 0.45 0.19 0 0 2.67 1.05
GHST 0.4 0.35 0 0 1.77 1.08
SUSHI 0.45 0.22 0 1 1.43 1.09

Aggressive:

Under these recommendations, each asset will see less than $6,000 of its collateral liquidated. In total, this will affect 457 accounts, leading to a cumulative liquidation of $23,396.070 in collateral value.

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated New HF Needed HF
BAL 0.45 0.01 1289.23 18 1.686 1.07
CRV 0.45 0.01 197.89 16 1.716 1.1
DPI 0.45 0.01 78.39 2 2.648 1.05
GHST 0.4 0.31 7.54 2 1.756 1.08
LINK 0.65 0.21 2107.32 11 1.651 1.08
SUSHI 0.45 0.01 27.06 4 1.43 1.09

Chaos Labs Analysis

Moderate

The moderate recommendations below suggest an LT configuration that optimizes reductions without significantly increasing the number of accounts eligible for liquidation. The proposed values are set at a margin of ~2-4% from the closest LT figure, which would trigger more substantial liquidations.

Asset Current LT Chaos Rec LT Value Liquidated ($) Accounts Liquidated
CRV 30% 25% 126 1
CVX 24% 20% 114 4
DPI 5% 1% - -
ENJ 44% 1% 4.64K 14
ENS 38% 30% 2.7K 9
LINK 80% 75% 3.63K 9
MANA 29% 24% 228 3
MKR 28% 26% 72 2
REN 18% 1% 2.24K 6
SNX 30% 1% 10.55K 20
UNI 55% 40% 2.16K 14
YFI 32% 25% 3.33K 1
ZRX 24% 18% - -
Value liquidated Accounts liquidated
Total $32,370 83

Aggressive

The aggressive recommendations ensure the deprecation of several assets (CVX, MANA, YFI), with an increase of ~$74K in value liquidated

Asset Current LT Chaos Rec LT Value Liquidated ($) Accounts Liquidated
CRV 30% 25% 126 1
CVX 24% 1% 33.24K 2
DPI 5% 1% - -
ENJ 44% 1% 4.64K 14
ENS 38% 30% 2.7K 9
LINK 80% 75% 3.63K 9
MANA 29% 1% 25.55K 13
MKR 28% 26% 72 2
REN 18% 1% 2.24K 6
SNX 30% 1% 10.55K 20
UNI 55% 40% 2.16K 14
YFI 32% 1% 20.24K 10
ZRX 24% 18% - -
Value liquidated Accounts liquidated
Total $106,024 103

Aave v2 Polygon

Asset Current LT Chaos Rec LT Value Liquidated ($) Accounts Liquidated
SUSHI 45% 1% 13 3
DPI 45% 1% 40 2
BAL 45% 1% 1.2K 15
CRV 45% 1% 127 11
GHST 40% 1% 7.7K 10
LINK 65% 1% 6.6K 26
Value liquidated Accounts liquidated
Total $15,600 69

Specification

Chaos and Gauntlet align on the aggressive approach to expedite the deprecation of several assets on V2, with a potential for ~$120K in total value eligible for liquidation, at the time of posting this proposal

Aave v2 Ethereum

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated
CRV 30% 25% 126 1
CVX 24% 0.05% 33.24K 2
DPI 5% 0.05% - -
ENJ 44% 0.05% 4.64K 14
ENS 38% 30% 2.7K 9
LINK 80% 75% 3.63K 9
MANA 29% 0.05% 25.55K 13
MKR 28% 26% 72 2
REN 18% 0.05% 2.24K 6
SNX 30% 0.05% 10.55K 20
UNI 55% 40% 2.16K 14
YFI 32% 0.05% 20.24K 10
ZRX 24% 18% - -
1INCH 1% 0.05% - -
BAL 1% 0.05% - -
BAT 1% 0.05% - -
KNC 1% 0.05% - -
FEI 1% 0.05% - -
xSUSHI 1% 0.05% - -
Value liquidated Accounts liquidated
Total $106,024 103

Aave v2 Polygon

Asset Current LT Rec LT Rec LTV Value Liquidated ($) Accounts Liquidated
SUSHI 45% 0.05% 0% 13 3
DPI 45% 0.05% 0% 40 2
BAL 45% 0.05% 0% 1.2K 15
CRV 45% 0.05% 0% 127 11
GHST 40% 0.05% 0% 7.7K 10
LINK 65% 0.05% 0% 6.6K 26
Value liquidated Accounts liquidated
Total $15,600 69

Next Steps

We will move forward with the direct-to-AIP framework and publish an AIP to implement the proposed updates.

Disclaimer

Chaos Labs and Gauntlet have not been compensated by any third party for publishing this ARFC.

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.

3 Likes
2

The proposal’s specification has been updated to incorporate the recommendation of setting the LTVs for V2 Polygon assets to zero, aligning with the recommendations for their LTs.

1 Like
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We’ve updated the recommended Liquidation Thresholds for assets that were previously suggested to be at 1%, lowering them to 0.05%.

This adjustment is also applied to other assets whose Liquidation Thresholds were set at 1% in earlier proposals, including 1INCH, BAL, BAT, KNC, FEI, and xSUSHI

This update does not create new accounts eligible for liquidation.

2 Likes
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Hi @ChaosLabs

We support the continued phasing out of all v2 deployments. The changes proposed to Polygon v2 are welcomed and compliment the existing ongoing efforts to increase the RF towards 99.99% across all reserves.

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AIP-404 has been published for this proposal, with voting starting in less than 24h.

Thank you in advance for your participation in the vote.

1 Like
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As of today, 111 total accounts amounting to ~$110K are at risk of liquidation on Ethereum, and 64 total accounts amounting to ~10.8K are at risk of liquidation on Polygon, following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

1 Like
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Hi @MacMoriano. The amount liquidated for accounts with health < 1 is calculated as the total value borrowed multiplied by the close factor, which is set to 0.5 on Aave V2.

As of now, the proposal would lead to the liquidation of 8 accounts using YFI as collateral, amounting to nearly $21K in value.

This proposal is a part of our continuous efforts to wind down the v2 markets. We strongly advise users who are utilizing the assets mentioned in this proposal as collateral to repay their borrows to avoid liquidations.

As with all previous LT reduction proposals, we commit to keeping the community informed with daily updates on the accounts impacted.

1 Like
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As of today, 113 total accounts amounting to ~$155K are at risk of liquidation on Ethereum, and 64 total accounts amounting to ~10.2K are at risk of liquidation on Polygon, following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

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As of today, 114 total accounts amounting to ~$154K are at risk of liquidation on Ethereum, and 66 total accounts amounting to ~10.8K are at risk of liquidation on Polygon, following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

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As of today, 113 total accounts amounting to ~$169K are at risk of liquidation on Ethereum, and 64 total accounts amounting to ~10.7K are at risk of liquidation on Polygon, following the proposed changes.

The full list of accounts and their projected health score, given the updated LTs can be found in this sheet .

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