Background
Due to the CRV position’s concentrated nature, it has proven challenging to draw statistically significant trends or data for a comprehensive analysis. As such, any recommendations we put forth are primarily informed by the recent on-chain behavior of the position holder, coupled with Aave’s optimal interests within the present circumstances.
Continued LT Reductions
We’ve previously outlined, and began executing a strategic plan entailing a series of LT reductions, specifically targeted at the gradual wind-down of the V2 CRV market. However, the execution of the most recent proposal in this series was aborted due to the unexpected Vyper Zero-Day exploit, which substantially altered the liquidity landscape and the anticipated impact of our proposed change. Despite this, we still believe that given the current circumstances and risk levers available on V2, this is the most effective course of action to mitigate Aave’s exposure to the CRV markets. We intend to proceed with the planned series of reductions.
Ethereum and Polygon V3 → Disable Borrowing
Turning our attention to V3, we recommend disabling CRV borrows on the Ethereum and Polygon V3 deployment (by setting the borrow caps to 0) to minimize the potential of shorting CRV or borrowing CRV to dump and further impact price.
LTV → 0
The LTV 0 proposal has surfaced by @Gauntlet We don’t categorically object to the idea; we question its efficacy, given that it can be circumvented in V2, as previously raised here.
CRV Market Freeze, Against
Similar to our analysis and approach here, we do not view a freeze of the CRV market as a productive measure given the current circumstances. In addition, given the debtor’s track record of loan repayments and maintaining a healthy position—most recently repaying a significant portion of the loan, freezing the market could lead to a premature liquidation of the position, given the user’s inability to top up utilizing CRV.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
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