Title: [TEMP CHECK] Enable Metis as Collateral on Metis Chain
Author: Mummy
Date: 2024-01-22
Summary
Proposal to enable Metis to be used as collateral on aave v3, Metis Chain.
Metis is the native token of the chain, positioning aave in a strategic position for the future.
Motivation
Aave will be given a prominent role in the Metis ecosystem and will be able to establish a strategic presence as the main lending platform. Aave will be in good company as the ecosystem vault will launch with incentives for builders, more projects will launching on the network and Aave will only strengthen his position until then.
Specification:
The proposal suggests onboarding of an asset that already exists on Aave markets
Disclaimer:
The author of this ARFC, Mummy, is just a user of Aave and Metis Ecosystem and owns Metis tokens. However, Mummy is not paid by the Metis Ecosystem nor any other entity to submit this ARFC.
please follow the guidlines on this forum. Even if what you are asking for is quite a small task, this template helps us to structure things and be faster. Timelines aren’t important for now, simply fill the template. If you need any further help let me know. [ARFC] ARFC and TEMP CHECK Framework - Governance - Aave
Should the community decide to enable METIS as collateral Chaos Labs recommends listing in Isolation mode. Below we present our analysis and risk parameter recommendations.
Background
Currently, the METIS token faces restrictions as it is not accepted as collateral. The current supply stands at 285K (~$22M), with a 400K (~$31M) supply cap. Only $35K in borrowed funds out of the $2.5M cap. This results in a 0% APY, even with existing incentives for both supply and borrowing. Enabling METIS as collateral presents an opportunity for additional utility, allowing suppliers to benefit from the existing incentives and facilitating more organic trading behavior.
Liquidity and Market Cap
When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of METIS over the past 180 days was ~$154M, and the average daily trading volume was ~$13M (CeFi & DeFi).
We have observed reducing DEX liquidity for METIS over the past few months, but has improved recently in $ terms, mainly due to a surge in METIS token price.
Liquidation Threshold
Analyzing METIS price volatility over the past, we observed daily annualized volatility of 122.1% and 30-day annualized volatility of 153.2%. We recommend launching with an initial LT of 40%, similar to the initial listing of OP on Optimism.
Debt Ceiling
Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $1M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for METIS as High.
Recommendations
Following the above analysis, we recommend listing METIS in isolation mode with the following parameter settings:
Gauntlet has been monitoring METIS liquidity of late given the recent surge in METIS price. In particular, it is important to ingest data over a long enough time frame rather than focus on the short term price movements.
Our analysis for enabling an asset as collateral considers data including the following to assess the risk factors when recommending parameters:
Market cap of the token
Total supply
Largest liquidity sources (exchanges including CEX and DEX)
Average daily trading volume on CEX and DEX
Concentration Risk
Other DEX metrics
Metis’ market cap of $408M and 30-day-average daily volume across multiple exchanges exhibits signals of liquidity and market interest for the asset. The asset’s level of liquidity in the market reduces the risk of price manipulation attacks.
Metric
Value
Market Cap
$414mm
Total Supply
10,000,000
Circulating Supply
5,265,547
30d AVG Volume
4,405,895
The largest liquidity sources for METIS are Uniswap (DEX) and OKX (CEX).
Uniswap
OKX
TVL
$4.3mm
-
24h Trading Volume
$1.6mm
$3,967,883
Recommendation
Should the community wish to enable METIS as collateral, we provide the following recommendations, noting conservative risk parameters and minimal capital efficiency.
Parameters
Gauntlet Recommendation
Isolation Mode
Yes
Enable Borrow
Yes
Enable Collateral
Yes
Loan to Value
30%
Liquidation Threshold
40%
Liquidation Bonus
10%
Liquidation Protocol Fee
10%
Debt Ceiling
$1M
If a METIS supplier were to max out the $1M debt ceiling and become liquidatable at a 40% LT, $2.5M METIS collateral would be collateralized against $1M stablecoin. Currently a $2.5M METIS / m.USDC swap would incur about 65% DEX slippage. While high, the conservative LTV/LT parameters provide a large buffer to insolvency during liquidations.
Given the m.USDC incentives on v3 Metis, this debt ceiling may be utilized quickly, noting that m.USDC borrowers may solely be interested in receiving METIS rewards.
Hey @mummy, Boardroom.io is hosting a governance call for Aave next week (tentative date is 2/22 at 5pm UTC). If you’d be willing to come on as a speaker and talk about this prop, shoot me a message on TG @alexsampson
