Hi @razaraz
Each market has its own risk profile, depositors can therefore choose where to allocate their liquidity based on their risk appetite
In this initial review of the Uniswap V2 Market, the Risk Team looked at UniTokens as collateral similar to the Uniswap V1 Market. In this first review ETH is not a collateral with no need of liquidity for liquidation. Furthermore most UniTokens are ETH pairs, as such they are highly correlated to ETH leading to less volatility risk. There is reduced risk when borrowing against the same asset and ETH not a collateral resulted in optimised risks for ETH
In the Aave V2 Market ETH’s average deposit APY is just 0.24% since inception showing there is little demand to borrow ETH. ETH is mostly used as a collateral. It is therefore crucial to ensure there is ETH liquidity available in case of the need to liquidated, this is where the aggressive borrow model kicks in from the optimal utilisation ratio.
The analysis is now being extended to the borrowing of UniTokens. In this case ETH is also a collateral with the need to protect liquidity with a more aggressive interest rate model so updating to the same borrow model as in Aave V2 Market