[ARFC] V2 Ethereum LT Reductions - 01.30.2024

Simple Summary

A proposal to reduce Liquidation Thresholds on Aave V2 Ethereum.

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.

Specification

Chaos and Gauntlet align on following recommendations, choosing the higher value between Gauntlet’s aggressive and Chaos’s moderate approach for each asset:

Aave v2 Ethereum

Asset Current LT Recommended LT
CRV 18% 14%
ENS 24% 0.05%
LINK 74% 72%
MKR 18% 14%
UNI 20% 14%
ZRX 12% 8%
Value liquidated Accounts liquidated
Total $67,480 47

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.

Copyright

Copyright and related rights waived via CC0


Appendix

Gauntlet Analysis

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 19 assets (1INCH, AMPL, BAL, BAT, BUSD, CVX, DPI, ENJ, FEI, FIL, KNC, MANA, RAI, REN, SNX, SUSHI, UST, YFI, ENS]) 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 35 accounts, leading to a cumulative liquidation of $14,349.64 in collateral value.

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated Cur HF New HF Needed HF
CRV 0.18 0.15 10.65 1 13.3983 13.3933 1.08
ENS 0.24 0.01 6851.32 19 1.46909 1.41373 1.07
MKR 0.18 0.15 1930.84 3 1.62945 1.60637 1.07
UNI 0.2 0.16 5444.94 10 2.01938 2.01432 1.07
ZRX 0.12 0.07 111.89 2 1.96471 1.66306 1.28

Aggressive:

Under these recommendations, each asset will see less than $25,000 of its collateral liquidated. In total, this will affect 50 accounts, leading to a cumulative liquidation of $84,074.33 in collateral value.

Asset Current LT Rec LT Value Liquidated ($) Accounts Liquidated Cur HF New HF Needed HF
CRV 0.18 0.12 23331.8 3 13.3983 13.3884 1.08
ENS 0.24 0.01 6851.32 19 1.46909 1.41373 1.07
LINK 0.74 0.72 15237.5 6 2.00195 1.97962 1.07
MKR 0.18 0.12 21999.8 7 1.62945 1.5833 1.07
UNI 0.2 0.14 16542 13 2.01938 2.01179 1.07
ZRX 0.12 0.07 111.89 2 1.96471 1.66306 1.28

Chaos Labs Analysis

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 18% 14% 23.44K 3
ENS 24% 0.05% 6.88K 19
LINK 74% 68% 28.37K 17
MKR 18% 14% 12.36K 14
UNI 20% 0.05% 31.01K 27
ZRX 12% 8% 102 1
Value liquidated Accounts liquidated
Total $112K 75

Aggressive

The aggressive recommendations below suggest an LT configuration that limits the current value liquidated per asset at $150K. These recommendations also ensure the deprecation of MKR.

Asset Current LT Chaos Rec LT Value Liquidated ($) Accounts Liquidated
CRV 18% 10% 151K 4
ENS 24% 0.05% 6.88K 19
LINK 74% 64% 47.15K 24
MKR 18% 0.05% 107.64K 14
UNI 20% 0.05% 31.01K 27
ZRX 12% 8% 102 1
Value liquidated Accounts liquidated
Total $349K 92
1 Like

AIP-23 has been published for this proposal, with voting starting in less than 24h.

Thank you in advance for your participation in the vote.

As of today, 50 total accounts amounting to ~$78.4K are at risk of liquidation 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

As of today, 48 total accounts amounting to ~$74.5K are at risk of liquidation 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

As of today, 47 total accounts amounting to ~$75K are at risk of liquidation following the proposed changes.

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

As of today, 49 total accounts amounting to ~$74.3K are at risk of liquidation following the proposed changes.

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