Risk Parameter Updates for AAVE V2 Ethereum
Vote Result: NO
Rationale
As gleaned from the forum post, the reasons not to freeze are stronger than the reasons to freeze. Firstly, freezing the asset might prevent more borrows, but also would prevent refillings. Any additional exposure from potential refills will not be very negative to Aave, given the assumption that the user will not have too much CRV to refill to begin with. Freezing will stop them from protecting their position further. Moreover, Chaos Labs’ simulations show bad debt amounting to tens of millions already and freezing would just be a token gesture that would not stop the negative effects from the overexposure to CRV that already exists. In a freeze, furthermore, as Chaos has mentioned, immobilising large CRV positions could lead to high market turbulence and cause a speculative attack on the CRV token. A freeze is a severe measure which should be enacted in scenarios where its impact is high - in this case, freezing CRV would be antithetical to the principles of DeFi since, one, the user is a long-term one who has been adding collateral to their position and repaying the loan in USDT, and there is nothing to indicate any malicious attack against Aave, and two, the protocol to prevent ‘potential bad action’ from a long-time user is questionable, especially when the Health Factor is still not dangerous. Aave is being used as intended and this would set a dangerous precedent for the future - the user has done nothing wrong.
While we do acknowledge the need to make risk parameter changes to deal with the existing overexposure to CRV and to generally migrate away from v2, freezing would not stop Aave from being exposed to bad debt and losing millions - it may make a bad situation worse. Therefore, we will vote NO for this proposal and await the risk providers’ recommendations on de-risking Aave v2.