LBS Blockchain Society Delegate Platform

Certora Continuous Formal Verification

Vote Result: YES

Rationale

In line with the Snapshot proposal (Security and Agility of Aave Smart Contracts via Continuous Formal Verification) previously submitted by Certora, we have voted YES for this proposal as well.

[ARC] - Strategic Partnership with Balancer Part #2 - 100k BAL Acquisition

Vote Result: ABSTAIN

Rationale

While it makes strategic sense for Aave to purchase BAL tokens and deploy them into veBAL, especially from the perspective of potentially increasing usage/adoption of GHO when it is deployed, there are still open questions around whether it makes sense to execute this purchase at the current moment given market conditions and the need to be prudent with treasury finances. There has also been no deeper analysis conducted on the quantitative risk posed by this purchase at this time. The original Snapshot was passed in May 2022, when market conditions were markedly different, and given the current state of the market, we are not sure whether it is prudent to buy more BAL at the current time and deplete the treasury.

We appreciate Matthew and Sakul’s responses, with our concern around the price of the acquisition being answered. The intent to stimulate adoption and demand for GHO upon launch is well noted, but this can be done via the 200k BAL that has already been acquired. There is a lack of clarity around the incremental risk/benefit for acquiring more BAL at the moment, especially with current market conditions. There has also been no decision made about whether to go forward with veBAL or auraBAL, which should be made prior to purchasing BAL since it increases clarity for the DAO.

Even though we are supportive of the strategic partnership with BAL and the alignment that is achieved by purchasing BAL tokens and converting them to veBAL/auraBAL, we are choosing to ABSTAIN on this proposal due to the open questions around prudence and risk in the current environment.

ARC: Add OP as Collateral to AAVE v3

Vote Result: NO

Rationale

Optimism is an important part of the Ethereum ecosystem and its integration with Aave is beneficial for both Aave and Optimism. However, market conditions today are risky, and the risk of listing OP as collateral to Aave v3 has not yet been established. Therefore, it is prudent to revisit this proposal when the risk analysis has been completed. For the future, the DAO should also endeavour to create a clear, transparent process for new assets that wish to list on Aave, including risk analysis, technical review, community discussion, etc.

Risk Parameter Updates for Aave V2 ETH Market (2022-11-12)

Vote Result: YES

Rationale

Demand by suppliers to supply REN and use it as collateral is very low, with utilisation at 6.19%. APY for suppliers is also very low at 0.05%, which indicates low incentive to supply. The borrow market is also paused because of a previous proposal (https://app.aave.com/governance/proposal/111/0), and revenues from it are miniscule at around $200 (borrow usage from users using REN as collateral * borrow interest rates * reserve factor). Given these facts, and that the market is extremely risky at the moment and risk of contagion is high, temporarily freezing the REN market may be more prudent for Aave.

A counterpoint is that risk of insolvency is low, and therefore even in difficult market conditions, if the risk is low, the market should still function to encourage usage. However, given that the risk/benefit analysis is not compelling enough to keep REN on the platform, freezing the market may be safer given the time lag in the governance process if risk spikes up given market volatility.

We have therefore decided to vote YES for this proposal.

1 Like

Risk Parameter Updates for Aave V2 ETH (2022-11-13)

Vote Result: YES

Rationale

Given that we voted in favour of the proposals to freeze the REN and CVX markets, BAL has been simulated to have as much risk as the above two assets. Therefore, given the current market environment, we have decided to vote in favour of this proposal. Balancer’s strategic relationship with Aave has been considered, and given the higher risk of V2 ETH, we feel it is more prudent to consider listing BAL in a safer environment on V3 ETH when it launches.

Risk Parameter Updates for Aave V2 ETH Market (2022-11-13)

Vote Result: YES

Rationale

CVX’s oracle price could be subject to manipulation and expose Aave to price manipulation attacks. Therefore, the relatively low revenues earned by CVX borrowing (even if it is doubled, the revenues are not high) combined with risky market conditions, makes it prudent and necessary for Aave to freeze the CVX market.

[ARC] Enable USDT as Collateral on Aave V3 (Avalanche)

Vote Result: NO

Rationale

Given the current market conditions after FTX’s fall, we believe that onboarding a centralised stablecoin such as USDT is a move that poses several risks for Aave.

In addition, Gauntlet’s analysis demonstrates that the risks for Aave are not only from a de-peg scenario, but also from a scenario where there is an expectation of a de-peg. This is because when there is an expectation of a de-peg, the results are similar to when a de-peg occurs: there will be increased borrowing and higher utilization of USDT, which can inhibit liquidators from carrying out atomic liquidations because when a liquidation happens, the liquidator should be able to seize the collateral asset of the position being liquidated. But in this case, if the collateral asset is USDT and it has high utilization, there simply isn’t available USDT liquidity for the liquidator to seize (because it has been borrowed out).

The above is why we are voting NO. However, if the proposal is approved, we would suggest doing so by very carefully defining the parameters via which USDT can be used as collateral.

1 Like

[ARC] Gauntlet <> Aave Renewal

Vote Result: YES

Rationale

In line with past experience with Gauntlet, where they provide superior analytical services, it is our belief that Aave should continue the relationship with Gauntlet. They will be expanding their services to cover V3 Aave developments including all chains and features. The existing working relationship with Gauntlet is great and the new proposal only seeks to improve this. The renewal price is also lower than the initial price paid for this year, and highlights their commitment to working flexibly with Aave.

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[ARC] Risk Parameter Updates for Aave V2 ETH 2022-11-17

Vote Result: YES

Rationale

Since the REN market has already been frozen and market conditions remain volatile, it would be prudent to reduce the risk of REN on Aave v2 Ethereum even further to ensure that Aave does not face any insolvencies. Reducing the LT to 60% and the LTV to 55% would only result in $100 worth of liquidations (as of Nov 18), which is acceptable when considering that a 5% reduction in LT can potentially save the protocol on $120k in bad debt. While it may make more sense to closely follow the Risk Off Framework’s LT reduction recommendation of 3% reduction in LT, increasing this by 2% seems to be the safe decision for the protocol and may head off another proposal to reduce LT even further if market conditions worsen.

Therefore, we have decided to vote in favour of this proposal.

1 Like

[ARC] SD Emission_Admin for Polygon v3 Liquidity Pool

Vote Result: YES

Rationale

Enabling the emission of SD will incentivise further deposits to the MaticX reserve pool on Aave Polygon v3, potentially increasing revenue for Aave. Since there is no security risk from giving the Stader Labs Gnosis Safe address the Emission Admin role, as confirmed by BGD Labs, we are in favour of this proposal by Llama and are voting YES.

[ARC] LDO Emission_Admin for Polygon v3 Liquidity Pool

Vote Result: YES

Rationale

Enabling the emission of LDO will incentivise further deposits to the stMATIC reserve pool on Aave Polygon v3, potentially increasing revenue for Aave. Since there is no security risk from giving the Lido address the Emission Admin role, as confirmed by BGD Labs, we are in favour of this proposal by Llama and are voting YES.

[ARC] stMATIC & MaticX Emission_Admin for Polygon v3 Liquidity Pool

Vote Result: YES

Rationale

Enabling the emission of stMATIC/MaticX will incentivise further deposits to the wMATIC reserve pool on Aave Polygon v3, potentially increasing revenue for Aave. Since there is no security risk from giving the Polygon Foundation address the Emission Admin role, as confirmed by BGD Labs, we are in favour of this proposal by Llama and are voting YES. Note that this proposal is very similar to the following two proposals that we voted YES for:

Therefore, we are voting in favour of this proposal as well.

Strategy on Sunset of Aave v1

Vote Result: OPTION 1

Rationale

We voted for Option 1 in this proposal for the following reasons: after 2 years of Aave V2 deployment, incentivizing the migration from V1 is the natural step to follow; this option does not present significant risks, since it keeps the platform active; and lastly, it reduces future overhead costs, avoiding potential maintenance and simplifying coding by omitting the need to consider that V1 is still functional.

[ARC] ETH Interest Rate Curve Update

Vote Result: YES

Rationale

Changing the ETH interest rate parameters on Aave V2 and V3 will increase revenue for the DAO, and allows for more efficiency with ETH eMode imminent on V3 pool deployment. Gauntlet has also completed a thorough risk analysis as in the forum post and finds no material risk with this proposal. Therefore, we have decided to vote YES in favour of this proposal.

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Risk Parameter Updates for Aave V2 (2022-11-17)

Vote Result: YES

Rationale

This is the on-chain governance vote for this Snapshot poll we voted in favour of. We will be voting in favour of this proposal as well according to the below rationale:

Since the REN market has already been frozen and market conditions remain volatile, it would be prudent to reduce the risk of REN on Aave v2 Ethereum even further to ensure that Aave does not face any insolvencies. Reducing the LT to 60% and the LTV to 55% would only result in $100 worth of liquidations (as of Nov 18), which is acceptable when considering that a 5% reduction in LT can potentially save the protocol on $120k in bad debt. While it may make more sense to closely follow the Risk Off Framework’s LT reduction recommendation of 3% reduction in LT, increasing this by 2% seems to be the safe decision for the protocol and may head off another proposal to reduce LT even further if market conditions worsen.

1 Like

Risk Parameter Updates for Aave V2 (2022-11-22)

Vote Result: YES

Rationale

Looking at the extensive community discussion over the last few days in light of the CRV mango squeeze attack, we appreciate that there are two paths forward for the Aave community:

  • As proposed by Gauntlet in this proposal, freeze tail assets in Aave V2 and encourage migration to V3, where borrow and supply caps enable granular management of risk.
  • Continue supporting tail markets in V2 and change risk parameters on an asset-by-asset basis, i.e., do not be as conservative as in Option #1 above.

Having considered all the arguments in favour of and against this proposal, we have decided to vote YES in favour of this proposal for the following reasons:

  • Market conditions have evolved; liquidity has reduced across the board, causing these long-tail assets to have greater risk than they would have had even weeks ago. Therefore, in today’s market conditions, freezing tail assets that represent only 5% of Aave’s TVL and pose much higher risk is prudent.
  • Freezing assets does not meaningfully impact existing user positions and does not lead to liquidations of healthy positions as reducing the LT for major assets like USDC/DAI would do.
  • The risk profile of attackers has changed. Attacks are not only being done where the expected value is profitable; rather, as in the case of the CRV attack, traders are willing to risk substantial amounts of their own capital even if it is not profitable for them, which can cause insolvency on Aave. This fundamentally changes the security threshold for each asset.
  • The proposal is not one that has arbitrarily decided to freeze all V2 assets, as can be demonstrated by UNI and LINK not being initially included in the list of assets. It aims to protect Aave against numerous market risks, as highlighted by @Pauljlei - insolvency risk from liquidation cascades, price manipulation, traders borrowing stables against volatile assets to avoid slippage, and high utilisation impacting atomic liquidations. Over the past few weeks, we have seen examples of how all of these attacks can potentially be implemented on Aave, and therefore out of an abundance of caution, agree with the proposal to broadly de-risk V2.
  • Freezing the Aave V2 pools will provide additional incentive to migrate to the V3 contracts once those launch. V3 has additional features around supply caps, borrow caps, isolation mode, e-mode, etc. that can help defend against future attacks.

With regards to the proposals to change the LT of USDC and DAI, as outlined by Chaos Labs in the forum discussion, we are in broad agreement to incrementally reduce the LT and attempt to protect healthy users from liquidations.

Lastly, with regards to the points made against this proposal, we agree that there must be more granular decision-making in V3, where supply and borrow caps and other features allow for more bespoke decisions. However, continuing to maintain long tail assets on V2 exposes Aave even more to bad debt and to reduce the probability of insolvencies, will require the LT of major assets like USDC, DAI, ETH, wBTC, and stETH to be reduced, which will lead to liquidations for many users across Aave.

1 Like

Pause UNI Borrowing

Vote Result: YES

Rationale

As outlined in our rationale for Proposal 121, the community decided to include both UNI and LINK in the list of assets on Aave V2 Ethereum that should be frozen in order to mitigate as much risk as possible and incentivise the move to Aave V3. Therefore, we are voting YES in favour of this proposal.

1 Like

Pause LINK Borrowing

Vote Result: YES

Rationale

As outlined in our rationale for Proposal 121, the community decided to include both UNI and LINK in the list of assets on Aave V2 Ethereum that should be frozen in order to mitigate as much risk as possible and incentivise the move to Aave V3. Therefore, we are voting YES in favour of this proposal.

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Risk Parameter Updates for Aave V3 AVAX 2022-11-23

Vote Result: YES

Rationale

Borrow caps are an easier way to manage against the risk of attack in times of market volatility. We support their implementation as part of the wider package of defensive measures proposed by Gauntlet in response to the recent market environment. Moreover, as seen in our rationale for Proposal 121, which can be seen on the LBS Delegate Platform, we encourage the use of the more granular risk protection measures as available on Aave V3. Since the borrow caps reduce likelihood of manipulation without significantly impacting borrow demand or capital efficiency, we are in favour of this proposal.

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Risk Parameter Updates for Aave V2 Polygon

Vote Result: YES

Rationale

In line with our rationale for Proposal 121, as can be seen on the LBS Delegate Platform, these markets need to be de-risked, especially on V2. Therefore, we are in favour of Gauntlet’s proposal to freeze the markets for BAL, CRV, DPI, GHST, LINK, and SUSHI, and to a community migration to V3 which allows for more granular risk management.

1 Like