[TEMP CHECK] Enable Metis as Collateral on Metis Chain

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.

Copyright:

Copyright and related rights waived via CC0.

Hi,

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

Thank you

3 Likes

@ChaosLabs @Gauntlet
Would you be able to check if this proposal makes sense for the token?

Thank you

3 Likes

Overview

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).

Untitled - 2024-02-02T171157.396

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.

Untitled - 2024-02-02T171200.406

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.

Untitled - 2024-02-02T171202.699

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:

Parameter Value
Isolation Mode Yes
Borrowable Yes
Collateral Enabled Yes
Debt Ceiling $1M
LTV 30.00%
LT 40.00%
Liquidation Bonus 10.00%
Liquidation Protocol Fee 10.00%

The following proposal has been escalated to TEMP CHECK Snapshot stage.
Voting will start tomorrow.

Analysis

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.

1 Like

Following Snapshot monitoring, the following TEMP CHECK Snapshot has ended, reaching both quorum and YAE as winning option, with 601K votes.

Next step will be a publication of the ARFC to gather more feedback from all relevant stakeholders.

2 Likes

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