Chaos Labs - E-Mode Methodology

Governance
3

Thanks for the comment and feedback, @sakulstra.

Based on the feedback provided in various E-Mode threads (in this post and here), the community should decide on its stance regarding the use of a stablecoin E-Mode, which is subject to the constraint that a single asset can only be part of one E-Mode configuration.

To simplify matters, we view two possible options for the configuration of stablecoin E-Modes:

  1. Aggressive parameters with a limited number of assets
    1. If the community chooses this approach, our recommendation would be for an E-Mode for highly correlated assets, excluding USDT.
  2. Conservative parameters and a wider range of assets
    1. If the community chooses this approach, we will follow up with recommendations for a more inclusive configuration on V3 Ethereum as well as updated parameters for all other V3 deployments. As shown in the post above, the parameters would be significantly more conservative, making it possible to include other stablecoins in the future or increase the LTs if market conditions allow.

Chaos Labs recommendation:

Following internal discussions and considering community feedback, Chaos Labs recommends Conservative parameters and a wider range of assets as the most viable solution. The main reasons for this recommendation are:

  1. Inclusivity: this option is more inclusive, particularly for USDT, which has a market capitalization that is twice that of USDC and DAI combined. By including USDT as a borrowable asset, E-Mode will be more accessible to a wider user base.
  2. Conservative LTs: More conservative LTs will better accommodate more significant short-term de-peg events, providing users with greater stability and security.
  3. User experience: Increasing the LTs is always possible, but decreasing them can have a significant negative impact on user experience and liquidations. Therefore, starting with a lower LT is a more prudent approach.
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