Thanks for the valuable discussion above. Gauntlet suggests initializing the ARB listing with conservative parameters at this time.
Based on the provided information, Gauntlet endorses the proposal and believes that listing the ARB token on Aave would be a sound growth strategy with minimal risk. ARB is a governance token in the Ethereum scaling ecosystem and is widely distributed, including to DAOs like Aave. Adding support for ARB in Arbitrum v3 pools adds greater TVL and user experience to the increasingly popular Aave v3 Arbitrum market and additional revenue opportunities for Aave. Enabling borrowing allows users and institutions to take a unique position on this Governance token as the network matures and builds a decentralized community. It more closely aligns the Aave community with Arbitrum and, by extension, Ethereum.
Given the emission schedule and current supply distribution of ARB token, liquidity concentration and asset flows should be monitored. We want to reiterate that ARB is currently traded on Coinbase Exchange, Binance, and Uniswap, and for the initial airdrop, 12.75% of the ARB supply was distributed across 600,000+ wallets.
Specification: Gauntlet Recs
| Parameter | Recommendation |
|---|---|
| Isolation Mode | YES |
| Borrowable | YES |
| Collateral Enabled | YES |
| Supply Cap (ARB) | 20M |
| Borrow Cap (ARB) | 20M |
| Debt Ceiling | 20M |
| LTV | 40% |
| LT | 50% |
| Liquidation Bonus | 10% |
| Liquidation Protocol Fee | 10% |
| Reserve Factor | 20% |
| Variable Base | 0 |
| Variable Slope1 | 0.07 |
| Variable Slope2 | 3 |
| Uoptimal | 0.45 |
Borrow and Supply Caps
For initial supply and borrow caps, we use the lower of the conservative and aggressive recommendations generated under Gauntlet’s Borrow and Supply Cap Methodology.
Enable Collateral and Borrow
Since ARB’s initial listing, the asset has seen generous liquidity:
| Symbol | Address | Circulating Market Cap | ADV | # Txns | Total Wallets |
|---|---|---|---|---|---|
| ARB | 0x912CE59144191C1204E64559FE8253a0e49E6548 | $1.36B | $569M | 489K | 13.7M |
At present, there is ample liquidity to support listing ARB as a collateral asset.
Furthermore, Gauntlet supports listing ARB as a borrowable asset. Recall that ARB is the official governance token on the Arbitrum network. Given the breakdown of ARB holders, there is low risk of a user borrowing ARB on Aave to make antagonistic voting choices on Arbitrum. Excluding the Arbitrum DAO treasury and Arbitrum Foundation, the top five wallets hold only 9.77% of the total supply of ARB. However, the borrowing use case alone may not generate meaningful borrowing revenue for Aave.
LTV and LT
We recommend setting LTV to 40% and setting LT to 50%. This is in line with the parameters of assets with a similar risk profile set on Aave v3, such as LDO on Ethereum Aave v3 and OP on Optimism Aave v3.
Liquidation Bonus and Liquidation Protocol Fee
We recommend setting LB to 10% and setting Liquidation Protocol Fee to 10%.
Interest Rate Curves and Reserve Factor
Following the parameters set on like assets, we recommend the following interest rate parameters:
| Parameter | Recommendation |
|---|---|
| optimalUsageRatio | 0.45 |
| baseVariableBorrowRate | 0 |
| variableRateSlope1 | 0.07 |
| variableRateSlope2 | 3 |
| stableRateSlope1 | 0 |
| stableRateSlope2 | 0 |
| baseStableRateOffset | 0.02 |
| stableRateExcessOffset | 0.05 |
| optimalStableToTotalDebtRatio | 0.2 |
Likewise, we recommend setting the initial reserve factor at 20%.
Isolation Mode and eMode
Following Gauntlet’s Isolation Mode Methodology, we recommend listing ARB in isolation mode with a debt ceiling of $20M. ARB is a relatively new asset, having only been listed March 23, 2023. Listing ARB in isolation mode allows the asset to undergo further testing. The debt ceiling is limited by the recommended supply cap.
At this time, we do not recommend any eMode pools or isolated assets for ARB. However, we will revisit this if new assets are listed in the future.