Extend Dynamic Risk Parameters to Aave Arc

Simple Summary

A proposal to extend Gauntlet’s Dynamic Risk Parameters service for continuous market risk management to Aave Arc.

Abstract

Aave Arc has provided a strong signal of institutional interest since its launch. First Fireblocks, then Seba, and potentially Securitize to follow. Since last year, Gauntlet has been dynamically managing risk parameters for mainnet v2 markets. The new Aave Arc markets are Aave v2 forks with the same risk parameters, which lend them well to the same form of risk management.

Proposal

Motivation

Gauntlet has spoken with many of the institutions who signaled interest in the initial Aave Arc - Fireblocks’ markets. Our goals for Aave v2 and Arc to optimize yield, capital efficiency, and mitigate depositor losses resonate with this audience which is often more familiar with the internal risk functions in traditional finance.

Next Steps

  1. Set up a separate instance for the Fireblocks’ markets
    ARC - Update Risk Parameters Mainnet Arc Market - #2 by inkyamze

  2. Calibrate and refit the new instance models. Depending on the concentration of assets per user (i.e., two or three users supplying >50% of the supply), simulations results could drastically change compared to the original Aave V2 simulations if TVL on Aave Arc multiplies. Gauntlet’s simulation data scientists will be calibrating Aave v2 tailored models to ensure predictable deployment with new Arc markets (Seba, Securitize) in the future.

  3. Generate new parameter recommendations and ensure legal considerations are cleared.

  4. Proceed with an ARC (request for comments), Snapshot poll, and AIP.

We welcome open discussion from whitelisted entities (Seba @ChriSEBA, Fireblocks @salmanblocks, Securitize @mike.rogers) and anyone else in the community.

Resources

Aave Arc docs
Fireblocks Markets

8 Likes

@inkyamze thank you for this proposal which we fully support. Aave ARC is a new permissioned market with its specific risk parameters and liquidity. We believe that Gauntlet’s assessment and recommendations can only be useful to all participants in this new market - including whitelisters - especially for risk management under specific market conditions.

7 Likes

Support on this from my side, especially if the institutional side on Arc already shows interest, and given that it is just a more specific extension of what Gauntlet is already doing in Aave.
Given the nature of the proposals to happen if this goes forward (periodic risk updates via governance), apart from the mandatory Snapshot, is it necessary to do an on-chain AIP @inkyamze ?

5 Likes

With regards to risk modelling and stress testing, Gauntlet has brought the highest standards of traditional finance to DeFi. This unique expertise will bring confidence to institutional experimenting with DeFi, some for the first time.

Fully support this proposal, which should help grow the Arc market size and protocol income

4 Likes

If the community and whitelister preferences are to omit the AIP from the Arc parameter update process, then we can probably accommodate. While there is no executable payload, as there is for v2 markets, Gauntlet’s motivation was twofold:

  1. Provide a clear “handoff” of the updated risk parameters for the associated Arc markets in a similar manner as v2 updates.

  2. Ensure our forthcoming Terms of Service are confirmed on-chain. These were the legal considerations mentioned above. We just received approval to modify the language and incorporate these into any Arc forum post or Snapshot poll.