Overview
In light of recent events and low demand, Chaos Labs provides a recommendation to lower MKR’s borrow cap to 1.
MKR
MakerDAO/Sky yesterday proposed and passed an out-of-schedule executive vote “to protect the project from potential governance attacks.” This involved changes to the LSE-MKR-A risk parameters and a reduction in the GSM Pause Delay. There were minimal explanations provided for these changes, with the author stating that they aimed to “fortify the protocol’s defenses and ensure swift, effective responses in the event of any malicious activity.” While the details of this attack vector and response become clearer, we recommend that Aave adopt a posture of risk mitigation.
As a result, we recommend decreasing MKR’s borrow cap to 1. As we establish below, the trade-off from making this change is minimal, as there is little borrow demand for MKR and setting the borrow cap to 1 will not adversely affect any current MKR borrowers, instead preventing future borrows.
MKR Usage on Aave
MKR is listed in Isolation Mode, with a debt ceiling of $12M, in the Ethereum Core instance. The asset is currently borrowable, though its cap is just 11% utilized, representing an overall utilization of 0.945%.
There is currently $2M worth of MKR that can be borrowed relatively cheaply, as full utilization of the borrow cap would result in 8.8% market utilization and a borrow rate of less than 1.4%.
Historically, there has been limited demand for borrowing except for brief spikes, which are quickly repaid.
Additionally, the collateral used for these positions is inconsistent, indicating that these were ad hoc positions, further pointing to a lack of long-term use cases for borrowing MKR.
Specification
| Instance | Asset | Current Borrow Cap | Rec. Borrow Cap |
|---|---|---|---|
| Ethereum Core | MKR | 1,980 | 1 |
Next Steps
We will move forward and implement these updates via the Risk Steward process.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this AGRS recommendation.
Copyright
Copyright and related rights waived via CC0