[ARC] Isolation Mode Recommendations for Aave V3 Avalanche, Polygon, and Arbitrum
Vote Result: AGGRESSIVE
Rationale
We support the aggressive recommendation since the underlying assumption of the debt ceiling at 25% of the circulating market cap is still safe while allowing for enough growth, and the aggressive recommendations would still de-risk the protocol.
There is a question around EURS on Polygon, for which borrowing would cease against the asset. There is one whale account that supplies 62% of EURS on Polygon, for which there would not be enough liquidity on Polygon to liquidate the user in a worst-case scenario. According to Gauntlet’s rationale, which we agree with, this account is supplying $1.7M EURS and borrowing $700k USDC, which suggests a relatively low risk from this account. In the event of liquidations, it’s likely that liquidators would redeem the liquidated EURS for EUR through Stasis rather than swapping EURS for other assets through DEXs. As an initial step, reducing the debt ceiling to limit further borrowing against EURS makes sense.
Gauntlet has also clarified that for USDT, the available liquidity of assets that can be borrowed is the limiting factor for both conservative and aggressive recommendations, rather than the circulating market cap. Therefore, the conservative and aggressive recommendations are the same.
Therefore, we will vote YES for this proposal.