Risk Parameter Updates for Aave V3 ETH Market (2023-03-18)
Vote Result: YES
Rationale
Gauntlet suggests that wstETH and rETH borrow caps are above the 75% threshold. According to their borrow and supply cap methodology, Gauntlet recommends the changes mentioned above in terms of the borrow and supply cap, which we believe is reasonable. Therefore, we will vote YES in favour of this proposal.
Freeze DPI on V2 Ethereum
Vote Result: YES (vote did not go through)
Rationale
Given usage and liquidity conditions of DPI, migrating the asset from v2 to v3 allows for more granular control over risk parameters, which is important in light of declining market cap and liquidity for the asset. Conservative caps allow for organic borrowing activity while removing all profitable attack vectors, mitigating risk for Aave. Therefore, we will vote YES in favour of this proposal.
[ARC] Gauntlet Risk Parameter Recommendations for V3 AVAX (2023-03-20)
Vote Result: YES
Rationale
There is a need to proactively de-risk the protocol considering ever-changing liquidity conditions, especially as the result of an event like the USDC de-peg, and the proactivity by both Chaos Labs and Gauntlet should be commended. Given that both risk providers are in agreement over the changes, we will vote YES in favour of this proposal.
[TEMP CHECK] Aave Chan Initiative 6-Month Budget Proposal
Vote Result: YES
Rationale
The ACI’s work on Aave to date has been impressive, thorough, and extremely valuable to the ecosystem. ACI has led on a lot of proposals and has helped drive a lot of the operational efficiency present in Aave today. Compensating the effort is only fair, and if this is not done, then it acts as a disincentive for other contributors to work on Aave. The $250k budget may seem excessive, but the stated aims are to also grow the team, for which this budget seems fair. We agree with what @OriN and @dtalwar have said - Marc’s active participation in Aave governance has been great and very helpful.
[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.
[ARFC - Temp Check] “MVP” V3 Deployment on ZkEVM Mainnet
Vote Result: YES
Rationale
Polygon’s zkEVM is one of the flagship zkEVM L2 chains and it is sensible and important for Aave to deploy on zkEVM, especially given market trends. Moreso, Aave v3 has been successfully deployed on the ZkEVM testnet for approximately 6 months (since October 2022). Since ZkEVM is EVM-equivalent, deployment would require minimal development work, and risk is mitigated by onboarding only strictly limited assets (only wETH, wMATIC, and USDC as collateral assets and USDC as a borrowable asset). One point of concern is that Gauntlet and Chaos Labs have not vetted this proposal and the risk parameters. However, given that this is a temp check, there is enough time for approval by Gauntlet and Chaos Labs on the risk parameters, and their validation is needed before the on-chain vote.
Therefore, we will vote YES in favour of this proposal.
[ARC] E-Mode Parameter Changes for V3 Avalanche, Optimism, Polygon, and Arbitrum
Vote Result: Option 1A
Rationale
We recommend Option 1A, since we agree with Wintermute that for users to use e-mode, it needs to offer more capital efficient parameters than regular borrowing, which is achieved under Option 1A while still offering various trading strategies. Option 1A is simply a more conservative version of Option 1, which we think is fair at this point given market conditions and the wider macroeconomy. Another positive is that Chaos Labs is supportive of Option 1A and has laid out a plan of implementing 3 consecutive 3.5% reductions to mitigate the impact on liquidations and user experience. Gauntlet has also implemented Chaos’ suggestion of reducing LTV to 80% which will further protect retail users from liquidations.
Regarding the other options, Option 2 limits e-mode to mostly ‘USDC’ based stablecoins, while Option 3 is just a more conservative version of Option 2. This reduces the benefits of e-mode significantly, one of which is arbitrage between stablecoins. Lastly, Option 4 does not make sense since stablecoin e-mode is still valuable.
Therefore, we will vote YES in favour of Option 1A.
[ARFC] - Chaos Labs Risk Parameter Updates - Aave V3 Optimism - 2023.03.22
Vote Result: YES
Rationale
Increasing LTVs and LTs for wBTC and DAI on v3 Optimism leads to a projected borrow increase of ~$155,000, with no increase in VaR and Extreme VaR, making this proactive move beneficial for Aave. Reducing the liquidation bonus for wBTC to be more in line with assets of a similar level of risk and liquidity (USDC and ETH) makes sense. A potential point of concern is the risk in ~40% of the on-chain supply of WBTC on Optimism being currently held on Aave. However, Chaos Labs’ analysis indicates that there is adequate on-chain liquidity to support significant liquidations.
Therefore, we will vote YES in favour of this proposal.
Risk Parameter Updates for Aave V3 ETH and V3 Arbitrum (2023-03-27)
Vote Result: YES
Rationale
AAVE, LINK, and WETH supply caps are above the 75% threshold on v3 Arbitrum, and Gauntlet proposes to increase WETH’s Supply Cap from 35,280 to 45,000 while leaving the supply caps for AAVE and LINK the same due to on-chain liquidity conditions. Moreover, rETH supply cap is above the 75% threshold on v3 Ethereum. They propose increasing the rETH supply cap from 10k to 20k. Moreover, they recommend decreasing the supply cap for CRV from 62.5M to 51M; current supply is only 108k, so 51M should be more than enough.
We think the above is sensible and will therefore vote YES in favour of this proposal.
[ARC] Community Preference for V3 Migration Levers
Vote Result:
YES - stkAAVE distribution
YES - Increase v2 RFs
NO - all others
Rationale
We support migration from Aave V2 to V3, given the more granular risk controls available and improvements to user experience. We would prioritise incentive levers that are least invasive to current users and minimise bad UX via liquidations. We also prefer levers that do not distort risk parameters on Aave vaults, given this can create risk dislocation in lending markets.
We are supportive of stkAAVE distribution. Despite delegate concerns over the stickiness of this type of incentive, we believe it is the least invasive option, and has publicity benefits in terms of raising awareness for the v3 product and its features. Likewise, we are supportive of raising V2 reserve factors, again because it is a less invasive option.
We believe the other options are too invasive for current borrowers / lenders and will also be overly disruptive to other protocols with existing integrations. We would also support the soft migration option proposed by Wintermute (increase LTVs and LTs on V2 without forced liquidations), although we note this is not part of the current option set.
[TEMP CHECK] - Aave V1 Offboarding Plan
Vote Result: YES
Rationale
We support this proposal to formally offboard Aave v1 in favour of v2 and v3 products. Offboarding users from Aave v1 to v2 and v3 will allow a more streamlined user experience and enable more sophisticated risk controls. The proposed risk parameters are appropriate and we believe this can proceed to AIP voting.
[ARFC] - Configure Isolation Mode Borrowable Assets - V3 Ethereum
Vote Result: YES
Rationale
The potential revenues from this opportunity outweigh the risks. We support whitelisting stablecoins, which have relatively low annualised volatility, for borrowing on Aave V3 Ethereum in Isolation mode. Therefore, we will vote YES in favour of this proposal.
[ARFC] Add LDO to Ethereum Aave v3
Vote Result: YES
Rationale
Adding LDO to the Ethereum v3 Liquidity Pool will diversify the assets offered on Aave and increase user cases. Despite the potential risks involved in terms of the correlation between LDO and stETH, the conservative risk parameters protect Aave from price manipulation and downside risks. Therefore, we will vote YES in favour of this proposal.
[TEMP CHECK] Add Support for wstETH on Polygon v3
Vote Result: YES
Rationale
Listing wstETH will create synergies along with existing wETH by increasing its APR and borrowing volume. By doing so, Aave can also facilitate the deployment of similar products on Polygon. Therefore, considering all the benefits, we vote YES.
[TEMP CHECK] Polygon v2 to v3 Liquidity Migration
Vote Result: YES
Rationale
We acknowledge that if we let the migration occur in a natural way, there will be more incentive for v3 to update its features and that would be beneficial to its long-term development. However, pure market-based action is slow and often inefficient, which means that despite v3 being more advanced than v2, there will still be users left on v2 because of sluggishness. In this sense, offering incentives for users to migrate creates good for both users and v3 respectively, so we will vote YES in favour of this proposal.
[ARFC] Deploy aCRV & CRV to veCRV
Vote Result: veCRV
Rationale
Looking at the above options, we would recommend the veCRV option due to the following reasons:
We recognise the main challenge of illiquidity and a lack of flexibility, since Aave would be committed to a 4-year lock-and-hold with no secondary market to attain liquidity. However, if we are long-term aligned to participate in Curve governance and optimise for security compared to the veCRV derivatives, then veCRV makes the most sense.
[TEMP CHECK] Aave V3 Deployment on BNB Chain
Vote Result: YES
Rationale
We think it would be sensible to explore Aave deploying on BNB Chain. While there are concerns around the centralised aspects of the chain, with it having only 26 validators and its Proof of Staked Authority consensus mechanism being quite centralised, it is still very prominent in the DeFi ecosystem, being the third-largest chain by TVL, maintaining 1 million unique active addresses transacting each day, and having a host of DeFi apps that Aave could tap into. One of the biggest attractions is that, as mentioned by FranklinDAO, there is a white space since there is yet to be a “blue chip” money market on BNB Chain. Aave being a flagship DeFi protocol would be extremely well placed to capture that position and gain a significant amount in TVL. Another positive sign is that BNB Chain’s TVL has been steady through most of the bear market.
With regard to the specific parameter recommendations, we hold no position at this moment, and look forward to Gauntlet and Chaos’ analysis.
We will vote YES in favour of this proposal and look forward to further discussing this topic.
Add LUSD to Aave Optimism V3 Pool
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal that we voted in favour of according to our rationale posted here. Therefore, we will vote YES in favour of this proposal as well.
Increase Supply Cap for cbETH Aave Ethereum V3
Vote Result: YES
Rationale
Since the supply cap of cbETH was reached in less than 48 hours when raised to 30k, it makes sense to double the supply cap to 60k especially as the change is supported by Chaos Labs and the upcoming Shanghai upgrade on April 12 is likely to make LSDs like cbETH and their pegs more resilient.
Risk Parameter Updates for Aave V2 AMM Market (2023-03-29)
Vote Result: NO
Rationale
The proposal was not published in the community and has not gone through any forum discussions. Current operational data, computation of risk profile and detailed calculations have not been revealed, so it may not be a mature timing to cast a positive vote. Therefore, we will vote NO for this proposal and encourage the authors to go through the correct process.