Simple Summary
A proposal to reduce Liquidation Thresholds on Aave V2 Ethereum.
Motivation
Following the deprecation schedule, Gauntlet and Chaos recommend the following parameter changes to frozen assets on Aave v2 Ethereum. 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.
Specification
Aave v2 Ethereum
| Asset | Current LT | Rec LT |
|---|---|---|
| CRV | 0.25 | 0.18 |
| ENS | 0.3 | 0.24 |
| LINK | 0.75 | 0.74 |
| MKR | 0.26 | 0.18 |
| UNI | 0.4 | 0.2 |
| ZRX | 0.18 | 0.12 |
| Value liquidated | Accounts liquidated | |
|---|---|---|
| Total | $14K | 39 |
Next Steps
We will move forward with the direct-to-AIP framework and publish an AIP to implement the proposed updates.
Appendix
Gauntlet Analysis
Recommendations
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 limit the maximum amount liquidated per asset to $10,000, and the aggressive recommendations aim to limit the maximum amount liquidated per asset to $25,000.
Out of 25 frozen assets, there are already 18 assets (1INCH, AMPL, BAL, BAT, BUSD, CVX, DPI, ENJ, FEI, FIL, KNC, MANA, RAI, REN, SNX, SUSHI, UST, YFI]) with LT <= 0.01.
Conservative:
Under these recommendations, each asset will see less than $10,000 of its collateral liquidated. In total, this will affect 30 accounts, leading to a cumulative liquidation of $15,956.56 in collateral value.
| Asset | Current LT | Rec LT | Value Liquidated ($) | Accounts Liquidated | Cur HF | New HF | Needed HF |
|---|---|---|---|---|---|---|---|
| CRV | 0.25 | 0.15 | 7056.17 | 6 | 16.5453 | 16.5122 | 1.08 |
| ENS | 0.3 | 0.24 | 287.65 | 1 | 1.47165 | 1.45246 | 1.05 |
| LINK | 0.75 | 0.74 | 38.71 | 1 | 2.00041 | 1.98981 | 1.07 |
| MKR | 0.26 | 0.18 | 4895.92 | 6 | 1.45832 | 1.43855 | 1.07 |
| UNI | 0.4 | 0.29 | 3283.49 | 14 | 1.77218 | 1.75737 | 1.07 |
| ZRX | 0.18 | 0.09 | 394.62 | 2 | 2.09883 | 1.60495 | 1.29 |
Aggressive:
Under these recommendations, each asset will see less than $25,000 of its collateral liquidated. In total, this will affect 43 accounts, leading to a cumulative liquidation of $32,352.87 in collateral value.
| Asset | Current LT | Rec LT | Value Liquidated ($) | Accounts Liquidated | Cur HF | New HF | Needed HF |
|---|---|---|---|---|---|---|---|
| CRV | 0.25 | 0.15 | 7056.17 | 6 | 16.5453 | 16.5122 | 1.08 |
| ENS | 0.3 | 0.24 | 287.65 | 1 | 1.47165 | 1.45246 | 1.05 |
| LINK | 0.75 | 0.74 | 38.71 | 1 | 2.00041 | 1.98981 | 1.07 |
| MKR | 0.26 | 0.18 | 4895.92 | 6 | 1.45832 | 1.43855 | 1.07 |
| UNI | 0.4 | 0.2 | 19679.8 | 27 | 1.77218 | 1.74525 | 1.07 |
| ZRX | 0.18 | 0.09 | 394.62 | 2 | 2.09883 | 1.60495 | 1.29 |
Chaos Labs Analysis
LT Reductions
Aave v2 Ethereum
Moderate (recommended)
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 | 25% | 18% | 3.37k | 4 |
| ENS | 30% | 25% | 144 | 1 |
| LINK | 75% | 74% | 38 | 2 |
| MKR | 26% | 18% | 2.27K | 6 |
| UNI | 40% | 20% | 11.17K | 25 |
| ZRX | 18% | 12% | 203 | 2 |
| Value liquidated | Accounts liquidated | |
|---|---|---|
| Total | $14.13K | 39 |
Aggressive
The aggressive recommendations below suggest an LT configuration that limits the current value liquidated per asset at $100K. These recommendations ensure the deprecation of ENS and UNI
| Asset | Current LT | Chaos Rec LT | Value Liquidated ($) | Accounts Liquidated |
|---|---|---|---|---|
| CRV | 30% | 18% | 3.37k | 4 |
| ENS | 38% | 0.05% | 86.81K | 17 |
| LINK | 80% | 74% | 38 | 2 |
| MKR | 28% | 15% | 35.35K | 21 |
| UNI | 55% | 0.05% | 91.13K | 55 |
| ZRX | 24% | 12% | 203 | 2 |
| Value liquidated | Accounts liquidated | |
|---|---|---|
| Total | $221,100 | 92 |
Disclaimer
Gauntlet and Chaos have 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.