[TEMP CHECK] Arbitrum USDC Migration

Governance
1

Title: [TEMP CHECK] Arbitrum USDC Migration

Author: Gauntlet

Date: 2023-09-22

Summary

Parameter change recommendations to facilitate the migration of bridged USDC.e to Native USDC on Aave’s Arbitrum deployments.

Motivation and Specification

As part of Gauntlet’s work with the Arbitrum Foundation to mitigate risk for the ecosystem while the ecosystem transitions from bridged USDC.e to Native USDC, Gauntlet has proposed adjustments to AAVE on Arbitrum. The adjustments covered in the report can be seen below:

  • Weekly 3% reduction in LTV and LT for USDC.e
  • (Depending on community preference) A conservative borrow/supply cap of 80% of circulating token supply onchain or an aggressive borrow/supply cap of 120% of circulating token supply onchain

These changes are intended to aid Arbitrum in the community’s transition from USDC.e to USDC.

Along with these recommendations, we will message the community when liquidations are expected as a result of the proposed changes.

An example alert can be seen below:

Attention: As of date, the data shows that the following accounts would be liquidated if these param changes were adopted. The list below specifies the USD value of collateral that borrowers would need to supply to reach a health factor of 1.1, on the assumption that their account’s composition of collateral types remains fixed.

You can read our full analysis here: Gauntlet's USDC.e Initial Migration Report - #5 by gauntlet - General - Arbitrum

Next Steps

  • Gather community feedback.

Disclaimer

  • Gauntlet is compensated by the Arbitrum Foundation to provide recommendations to the major protocols on Arbitrum to facilitate USDC migration. These strategic migration recommendations do not fall under the scope of Gauntlet’s continuous market risk management work for the Aave DAO.
  • This proposal is not meant to indicate that the Arbitrum community should mandate the actions of the multi-deployment and self-governed Aave DAO.

Copyright:

Copyright and related rights waived via CC0.

4 Likes
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Thanks @Gauntlet I’d suggest opting for the conservative strategy for this migration.

1 Like
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We’re supportive of the migration. We believe most of the ecosystem on Arbitrum is moving towards USDC and is aware of the move. A conservative approach would be our selection in order to avoid any considerable liquidations for users that are not actively checking the migration process.

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Thanks all for the feedback. Given this initial support, we plan on moving forward to the ARFC stage with a Snapshot vote targeting next week.

For more context, below are data on current and recommended values and data on liquidatable accounts (number and $) under different LTs.

Note that for native USDC, Aggressive caps are higher than Conservative caps, but for USDC.e, Aggressive caps are lower than Conservative caps. This is intended for the purpose of migration (e.g., asset flows from USDC.e to native USDC).

One exception: for USDC.e borrow cap, the conservative value is greater than the current parameter value. If the conservative option is chosen, we would not move forward with increasing USDC.e borrow cap, as that would be against the intent of this migration recommendation.

Parameter Current Parameter Value Current Supply or Borrow Aggressive Recommended Value Conservative Recommended Value
USDC Borrow Cap 41,000,000 12,000,000 105,000,000 70,000,000
USDC Supply Cap 41,000,000 14,000,000 165,000,000 110,000,000
USDC.e Borrow Cap 100,000,000 29,000,000 70,000,000 105,000,000
USDC.e Supply Cap 150,000,000 33,000,000 110,000,000 120,000,000

Liquidations Data:

Total user count and amount liquidated for dropping USDC.e on Aave V3 on Arbitrum LT to 83%, 80%, and 76%.

83%: 553 liquidated users ($14,217)
80%: 1464 liquidated users ($218,726)
76%: 1864 liquidated users ($313,826)

1 Like
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