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).
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:
| 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% |