The only other option i see is Aave buying a lot CRV in an OTC deal. This way he could repay his loan and we could use the token to boost GHO pools on curve. But it has to be a big deal and a new curve war. What about that?
2 Likes
I like this idea. One of the issues that I’m seeing is that the community doesn’t know what type of off chain communication has been floating around and we also welcome the “user” to come here and have an open discussion. Many of us, AAVE stakers, would love to be part of an OTC deal who can boost GHO’s liquidity far & beyond.
2 Likes
I think we would have enough expert in here who could get in touch to make a deal and communicate with us. Or @michwill just comes here and makes an open offer.
2 Likes
With our knowledge of DeFi ecosystem and our experience in the traditional financial sector, we are participating in this debate to share our modest opinion on how to resolve this delicate situation that has been exacerbated by this Vyper bug.
1) Disable CRV lending on Ethereum and Polygon V3 deployment
In order to reduce the risk of a token like CRV experiencing liquidity problems underscored by a security bug event, resulting in a drop in price of CRV, its lending should be disabled on Ethereum and Polygon V3 as it was in Ethereum V2.
2) LTV → 0 as proposed by Gauntlet in mid-June 2023.
Taking LTV to 0 will not immediately lead to the liquidation of Egorov’s position, only if LT is lowered to 0.LT should also be gradually reduced. Consequently, this proposal makes no sense without an agreed-upon payment plan with Egorov, because it will not solve the problem, but will aggravate it and drag other DeFi protocols down.
By reducing LT gradually with a plan agreed upon with Egorov, where Egorov can exchange part of the CRVs for USDT even if it is done OTC, the debt can be eliminated without causing a liquidation that will accelerate the liquidation and cause other Defi protocols to be dragged down.
Another way is to make OTC of CRV for ETH and wBTC to diversify the guarantee with more liquid assets and thus there is no pressure in the liquidation and we would reduce the danger. We could buy more time for liquidation by reducing your risk.
It is necessary to ask Egorov to increase the guarantees with assets other than CRV, such as assets in the V2 etherum market, or refinance the operation with even an RWA owned by Egorov and thus plan the elimination of debt.
3) Freeze of the CRV market.
Market freeze would prevent CRV depositing. We should allow CRVs to be deposited to help increase collateral.
Many thanks
Initial proposal written in Spanish,
En primer lugar, les pido disculpas por contestar en español, cuando el idioma del foro es en ingles.
Nuestra experiencia en el sector financiero tradicional y nuestro profundo conocimiento del ecosistema DeFi nos ha hecho participar en este debate para ofrecer nuestra modesta opinión para solucionar esta delicada situación que se ha acelerado con el bug de vyper.
1) Deshabilitar préstamos de CRV en la implementación de Ethereum y Polygon V3
Parece sensato reducir el riesgo de un token como el CRV que atraviesa problemas de liquidez acentuado por el evento de bug de seguridad, ya que eso puede ejercer a la baja el precio del CRV por lo que me parece necesario deshabilitar préstamos de CRV en Ethereum y Polygon V3 como ya se hizo en Ethereum V2.
2) LTV → 0 como proponía Gauntlet a mitad de junio 2023.
Llevar LTV a 0 inmediatamente llevará a la liquidación de la posición de Egorov. Por lo que sin que haya un plan de pagos consensuado con Egorov no tiene sentido esta propuesta que no solucionará el problema sino que lo agravará y arrastrará otros protocolos DeFi.
Llevar LTV a 0 paulatinamente con un plan consensuado con Egorov, donde Egorov pueda deshacerse de parte de los CRV y cambiarlos por USDT aunque sea con OTC sería la forma adecuada de eliminar la deuda sin provocar una liquidación que acelerará la liquidación y arrastrará a otros protocolos DeFi.
Deberíamos pedir a Egorov que aumente las garantías con un activo diferente a CRV debería ser con otros tipos de activos incluido en el mercado de etherum V2 o refinanciando la operación con incluso un RWA propiedad de Egorov y así planificar la eliminación de la deuda.
3) Congelación del mercado CRV
La congelación del mercado evitaría depositar CRV. Deberíamos permitir que se puedan depositar CRV para ayudar a aumentar la garantía.
Gracias, seguro que de una manera u otra se solucionará esta delicada situación.
3 Likes
Aho! I’m new to this forum, but my entity has held AAVE on the SM for a long time. I will be more involved in AAVE’s governance from now on.
We are aligned with “BlockAnalitica” and “eboado” analysis, we are in support of:
- LTV to zero.
- Freezing CRV on Aave v2.
- Disabling borrowing of CRV on Aave v3.
- Increase CRV Liquidation Penalty: We need to think about this thoroughly, and we should present some scenarios here; is not a minor change.
- Adjust v2 Interest Rate Models: This is a crucial thing and a major opportunity for the DAO to incentives the “big migration” from v2 and v3. We would love to get the opinion of @ChaosLabs and @Gauntlet on this vital implementation.
Thanks, everyone; we are together to find a viable solution to this unforeseen situation.
4 Likes
Having considered the global community sentiment.
The ACI, while still believing the next course of action in the immediate term is not specific actions. Will respect community consensus.
We will cast a YAE vote to @Gauntlet AIP on LTV → 0. We are thankful for all community participation and overall high-quality discussion on this heated topic.
5 Likes
I would like to bring this up again. @MarcZeller @Flipside @0xkeyrock.eth and all the others (sorry for not tagging).
Should we consider buying up more CRV to boost GHO pools in the future? We already have liquid CRV token.
This could be a win win situation for all of us and gives us all some more time and relief in the current situation.
Some analysis would be great here.
4 Likes
This is an interesting option, but I’m not sure how the protocol should approach OTC deals like this. Would a “treasury swap” similar to what was done with Balancer be the preferred route?
Which team are you referring to? There is no team. This is a DAO. There won’t be someone acting in his name making a trade and then transferring the funds to the treasury.
1 Like
Summary
- Freezing and setting LTV->0 will have little impact.
- Aave can’t be as aggressive as other protocols due to the outsized CRV exposure.
- CRV collateral will rapidly lose value if this position nears liquidation. It’s in Aave’s best interest that the CRV market remains healthy as the user winds down their position.
CRV Market Freeze
There’s a growing narrative in the forums that freezing the CRV market prevents further borrowing. Unfortunately, that’s not the case. Even if we were to enforce an immediate freeze, the wallet’s health score is still ~1.83. An additional ~33.5m USD can be borrowed at current CRV prices. Similarly, while a freeze will prevent further CRV deposits, it does not afford guarantees in significantly curtailing the existing credit line. It prevents the user from top-ups aimed at maintaining health levels. The user in question has been repaying significant debt over the past few days, and redeeming CRV, minimizing Aave’s CRV exposure.
LTV->0
The proposal to set LTV to 0 is at the AIP stage and is expected to be approved and executed in the next few days. Regrettably, a technical limitation in V2 means that setting LTV to zero does not inhibit additional borrowing, as mentioned in previous discussions. As a result, this change will have a limited impact and doesn’t offer us any assurances or reduce our exposure.
Why Aren’t We As Aggressive As Other Protocols?
Aave’s exposure to CRV exceeds that of the second-largest protocol by ~5x. We can exert aggressive pressure on the position towards liquidation, but the CRV market is illiquid at a significant size. Although there seems to be an OTC market for Curve at $0.40, we doubt that current demand can currently cover the borrower’s entire position. Aave and our industry’s collective interest is for CRV to weather this storm. In fact, the market is pricing it as such, as the AAVE/CRV correlation has been 0.92 over the past week.
We aim for Aave to retain collateral of value, affording the borrower optionality to repay depositors and prevent a shortfall event.
Why Does Aave Benefit From This Position Maintaining Its Health
As the position reaches liquidation, liquidity on the ask side will lessen. Even without extreme volatility, the ±2% order book depth is ~350K and ~590K USD on the Binance CRV/USDT spot market.
A healthy CRV market benefits Aave and maximizes the probability of recovering the debt.
Collaborating with the Borrower
The technical limitations of V2 mean we need to find another solution to minimize the risk CRV poses to Aave. Fortunately, this situation is one where we know who the borrower is. Aave community members communicate with him and think that with some finesse, we can come to a reasonable conclusion to this episode.
It’s also important to note that the borrower has been liquidating sizable chunks of CRV via OTC over the past few days and repaying debt. We’re hopeful this trend continues.
Next Steps
- Chaos Labs is preparing AIPs to disable borrows on V3 Ethereum and Polygon.
- When markets stabilize, we will continue our series of incremental LT reductions to wind down the CRV V2 ETH market.
- In collaboration with @Gauntlet, we support reducing CRV LT on Ethereum V3.
As always, we’re available; feel free to reach out if you have any questions.
12 Likes
thanks @ChaosLabs for this valuable summary.
The ACI will sound like a broken record, but we still believe the most viable strategy is to reduce LT every week until LT reaches zero gradually.
This will be predictable and will allow borrowers to reduce debt in the least painful manner gradually.
The ACI favors a “soft” program that doesn’t exceed 3-5% reduction per week allowing a bit more than a quarter to reduce the CRV collateral for the debt to zero.
Once the situation is normalized, CRV should only have a future in V3, and V2 users should be encouraged to adopt V3 by raising RFs & gradual reduction of LT on all V2 assets.
7 Likes
Strongly in favor of leveraging RFs to gently migrate users to V2 (and using LT reduction where unsafe positions have manifested)
2 Likes
Aho,
Thanks @ChaosLabs for your comprehensive analysis. We would love to hear your thoughts regarding the analysis from @BlockAnalitica regarding these two things: Increase CRV Liquidation Penalty and Adjust v2 Interest Rate Models
1 Like
Summary
The CRV LTV → 0 on Aave V2 Ethereum proposal will pass AIP on Aug 5 with over 900k votes from the community.
Given users are migrating to V3 (see data below) and other associated risk factors for CRV, we have recommended reducing CRV LT and LTV on v3 Ethereum and Polygon, as well as debt ceiling on v3 Ethereum. The associated AIP-288 was deployed earlier today.
We continue to make incremental risk mitigation recommendations and are choosing minimize bundling recommendations together, to accomodate any nuanced preferences from the community.
Below we share additional analysis and data on CRV liquidity, Aave TVL, withdrawals, migration, and thoughts on RF adjustments.
Expected Insolvency
We’ve ported some simulation results for CRV here. Results are grouped by drawdown percentages and liquidity decrease percentages. The simulation emphasizes that the current liquidity levels, as well as potential future reductions in liquidity, are unlikely to prevent insolvencies at price drops >= 80%, despite improving since the initial Vyper hack.
Liquidity Comparisons to Nov 2022
It is impossible to predict where CRV price stabilizes. A breach of 0.4 may cause more price discovery, since
- OTC bid forms a soft barrier
- Not reflected in current Binance spot orderbook
- First liquidation levels are below the OTC bid
However, we aim to shed some light on how CRV liquidity behaved during the FTX crisis and the Avi Eisenberg incident. We look at how both DEX and CEX liquidity evolved back then to form a proxy for how liquidity might evolve if CRV undergoes stress today.
Currently, there is a ~50% drop to liquidation and a ~70% drop to first insolvencies. Using historical context, we estimate CEX and DEX liquidity to drop by 50% with sudden price drop to liquidation levels, and liquidity to drop by 75-80% with a sudden price drop to insolvency levels. At lower liquidity levels, CRV price is likely to be significantly more volatile. Where CRV price stabilizes will be impossible to predict.
Binance currently accounts for roughly 1/3 of the depth and the majority of the volume.
-
FTX event
- DEX liquidity roughly dropped by 50%, and CEX liquidity roughly dropped by 80% during the FTX event.
-
Avi event
- DEX liquidity dropped by ~30-40%, CEX liquidity was noisy but did not meaningfully change
-
Binance CRV/USDT spot market, November 2022
- CRVETH Curve pool liquidity
TVL Changes
Migration continues to V3 which has enhanced risk controls. To mitigate similar CRV insolvency risk in V3, we deployed AIP-288 to reduce LT, LTV, and debt ceiling on V3 Ethereum and Polygon.
v3 Ethereum
v2 Ethereum
Where did withdrawals go?
Total Withdrawals Difference: $563.327M since 7/30 from Ethereum Aave v2 accounts.
Breakdown Categories
- Unclear final destination: $64.827M
- Staked in stUSDT (Justin Sun): $52.4M
- Held in wallet: $192.3M
- Migrate to v3 Ethereum: $186.1M
- Compound: $7.3M
- Binance: $7M
- Huobi: $53.4M
Exclusions
- CRV founder: $36.5M
0x7a16ff8270133f063aab6c9977183d9e72835428 - Withdrawals from Morpho: $26.0M
0x777777c9898d384f785ee44acfe945efdff5f3e0 - Flamincome Protocol: $12.1M
0x1d0c2555a0002a54de13749af384223691bcb4d6
Details
Unclear final destination
0xa38aa9ae8953f245b44e84b6f25e0032e58b1f42: $29.9M0x1da05bce1edd2369cddcb35e747859ef6a675010: $15.8M0xccee999c040caa91e2e1e23ea99d5e154e1e94c4: $6.9M0x77fcae921e3df22810c5a1ac1d33f2586bba028f: $6M0x526d0047725d48bbc6e24c7b82a3e47c1af1f62f: $5.6M0x06185ca50a8ab43726b08d8e65c6f2173fb2b236: $0.627M
Huobi
0xbcb742aadb031de5de937108799e89a392f07df1: $53.4M
Staked in stUSDT (Justin Sun)
0x176f3dab24a159341c0509bb36b833e7fdd0a132: $52.4M
Held in wallet
0x02ed4a07431bcc26c5519ebf8473ee221f26da8b: $33.3M0x32c98a981fe7c333bd4e8e7630e8e0cf5ce20987: $30.0M0x8cc2af700d686e7e21135681511992c972dbd8ea: $30.6M0xf9b43deb017253448eea94ad790db67541487021: $24.5M0x769952be34f5f9b267e5a467149219e646968bd7: $16.5M0x817f6e501e640c5efbadbe98bf3f896a694212b5: $10.8M0x900ca99de58dc581c04f3844b3e56370654dc79e: $10.6M0x13939d994b1a27753de29adddb56d175e846608b: $7.8M0xf08600e1de0ae7294ab3e245e433f4121b93c75a: $7.1M0x29cc23660158f945942dac47a9db1c0177f31c77: $6.1M0xdc77b2c59db1b02f988e8e08a60fbe9139447cc3: $6M0xc49515cbce8a5ba7e82b46abf3401400fd94233e: $5M0xc6f69e100bbb34d3a18caa01d3e2e1ca76214e16: $5M
Migrate to Ethereum v3
0x171c53d55b1bcb725f660677d9e8bad7fd084282: $63.2M0x06e4cb4f3ba9a2916b6384acbdeaa74daaf91550: $20.8M0x05bc11f64c6515bb384b05bfd3e0d0424fa65aa4: $20.5M0x3c9ea5c4fec2a77e23dd82539f4414266fe8f757: $24.3M0xb748952c7bc638f31775245964707bcc5ddfabfc: $128M (Migration via Migration Tool)
Compound
0xdfcaf20a17521a761036af8a3a758fcdd91dfc07: $7.3M
Binance
0x0082ce7f8a3e3c69e7c5cd801760d40d55ce119c: $7M
Reserve Factor Adjustments
- We agree with @Blockanalitica that Reserve Factor (RF) changes for CRV are unlikely to have a significant isolated effect on the risk level. One other consideration is to raise the RF for USDT, which we analyze below.
- RF changes historically have unclear effects on borrower and supplier behavior.
- The most significant change was BUSD deprecation (RF from 0.1 to 0.999), but was also accompanied by IR param increases.
- Deprecation reached its intended goal in reducing supply and borrow.
- RF change is unlikely to have a significant isolated effect
- Assuming RF increase incentivizes suppliers to leave and triggers 100% utilization, the max rate for USDT is 104%, which is lower than loans on Abra (130%)
- RF change directly impacts all other USDT borrower (this account is only 20% of total USDT borrowing)
- USDT suppliers are unable to exit and get lower supply reward to compensate for their added risk
Next Steps
- Queue and execute AIP-286 (LTV0 on v2)
- Gain clarity on the community preference to freeze CRV on v2 Ethereum. The first time we froze v2 CRV (Nov 2022) it was immediately rolled back. Recently we went straight to AIP, which was unanimously voted down. We are open to more discussion or Snapshot. Our AIP payload ready. Please discuss.
- Facilitate CRV v2 market unwind with LT reductions.
2 Likes
Over the past few days, the user has repaid ~20.75M USDT and has redeemed ~73.25M CRV bringing the account health to 2.11 at the time of this post.
We stay consistent with our recommendations to incrementally reduce LTs to wind down the CRV V2 ETH market, in addition to disabling borrows on V3 deployments.
We started a separate thread to discuss the deprecation of the CRV market on V2 Ethereum here.
Next Steps:
We have prepared two separate AIPs, which are currently under review and are planned to go live shortly:
- Disable CRV borrows on V3 Ethereum and Polygon.
- Reduce LT of CRV on V2 Ethereum by 6%. This is the same planned reduction that the community has previously voted on and was canceled during the CRV price downturn last week.
-
As of today, this LT reduction will make 3 total accounts amounting to ~$107 eligible for liquidation.
List of affected accounts:
3 Likes
As an update, the following AIPs have been published:
2 Likes
Previous changes to LT were at most 3%. Why is this limit being exceeded with this reduction by 6%?
Hi @marblemonkey,
The community was presented with two options to vote from, both with minimal impact on existing users:
- “Aggressive” option to reduce LT by 6%
- “Moderate” option to reduce LT by 3%.
In a Snapshot vote, the community voted for the “Aggressive” option. You can find the governance discussion around the proposal here.
5 Likes
The community discussion to freeze continues in a new thread. [ARFC] Gauntlet Recommendation on freezing CRV for Aave v2 Ethereum
1 Like