Chaos Labs Recommendations
Overview
Chaos Labs supports listing ARB in Isolation Mode as part of an overarching strategy to increase the offering of the Aave protocol.
Liquidity and Market Cap
When analyzing the market cap and trading volumes for ARB, we looked at data from the past 30 days. The average market cap of ARB over the past 30 days was $1.7B, and the average daily trading volume was $817M (CeFi & DeFi). We find the market cap adequate and the trading volumes reasonable as long as they are considered when setting appropriate supply caps, a debt ceiling, and borrow caps.
Liquidation Threshold
Analyzing ARB price volatility, we observed a daily annualized volatility of 101.14% and 30-day annualized volatility of 103.93%. Considering this volatility and the fact that ARB is a newly launched token, we recommend launching with an LT of 60%.
We support listing ARB as borrowable as we do not observe a significant risk to the protocol by allowing to borrow ARB.
Debt Ceiling
Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $14M. In our methodology, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for ARB as Medium-High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.
Supply Cap, Borrow Cap, and Liquidation Bonus
Following Chaos Labs’ approach to initial supply caps, as introduced with the Metis deployment recommendations, we propose setting the Supply Cap at 2X the liquidity available under the Liquidation Penalty price impact.
Given the concentrated liquidity of ARB we recommend a 7.5% Liquidation Bonus and a derived supply cap of 30M ARB, and a borrow cap of 16.5M ARB.
Recommendations
Following the above analysis, we recommend listing ARB with the following parameter settings:
| Parameter | Value |
|---|---|
| Isolation Mode | Yes |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (ARB) | 30M |
| Borrow Cap (ARB) | 16.5M |
| Debt Ceiling | $14M |
| LTV | 55.00% |
| LT | 60.00% |
| Liquidation Bonus | 7.50% |
| Liquidation Protocol Fee | 10.00% |
| Reserve Factor | 20.00% |
| Variable Base | 0.00% |
| Variable Slope1 | 7.00% |
| Variable Slope2 | 300.00% |
| Uoptimal | 45% |
| Stable Borrowing | Disabled |