Risk Parameter Updates 2021-11-04

Simple Summary

A proposal to adjust seven (7) total risk parameters across five (5) Aave V2 assets including LTV, Liquidation Threshold, and Liquidation Bonus. In addition, we propose freezing the KNCL reserve.

Abstract

This proposal is a batch update of risk parameters to align with the the Moderate risk level chosen by the Aave community. These parameter updates are a continuation of Gauntlet's regular parameter recommendations, the latest being AIP-43: Risk Parameter Updates 2021-10-21.

Motivation

This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets. For more detail on Gauntlet's first two months of recommendations and their impact, please see Q2 Dynamic Risk Parameters and the Monthly Risk Report.

Specification

This past week had significant updates in market conditions as well as drastic changes within the Aave protocol. Volatility drops and increases in trading volume and liquidity for most assets were observed. At the same time, there were significant withdrawals from stablecoins reserves. These transactions should not lead to less protocol safety, but these transient changes are important to consider within the context of ecosystem structure.

Parameter	Current Value	Recommended Value
ENJ Liquidation Bonus	10.0%	7.5%
REN Loan To Value	55%	60%
REN Liquidation Threshold	60%	65%
SNX Loan To Value	30%	40%
SNX Liquidation Threshold	55%	60%
SUSHI Liquidation Bonus	10.0%	8.5%
ZRX Loan To Value	60%	65%

See below volatility and exchange volume data from 10/21 to 11/04 that were important drivers for the updated parameter recommendations.

Symbol	11-04 Volatility	10-21 Volatility	Volatility Change	Weekly Average Daily Volume Change (%)
ENJ	1.13420106	1.099162375	0.035038685	4.707755052
REN	1.101234165	1.530519396	-0.429285231	0.073368269
SNX	0.77106532	1.070499773	-0.299434453	1.189819991
SUSHI	0.973681039	1.284012632	-0.310331593	0.641782118
ZRX	0.8480448	1.067526026	-0.219481226	6.053287908

Freezing KNCL The KyberDAO approved the proposal to migrate KNC token contract to a new implementation on 4/20, which enables Kyber governance to upgrade KNC efficiently. As of 11/2, 177M of KNC have migrated to the new Kyber Network Crystal (KNC) and 74M of KNC are still in the old KNC Legacy (KNCL) contract. There is currently 916K KNCL supply and 229k total borrowed on Aave.

Considering that exchanges (e.g. Kraken, Crypto.com) have stopped supporting KNCL deposit and trading, the liquidity of KNCL has also been reduced. We propose freezing KNCL to speed up the KNC migration as well as eliminating the risk of keeping a less liquid deprecated asset on the platform.

Risk Dashboard

The community should use Gauntlet's Risk Dashboard to better understand the updated parameter suggestions and general market risk in Aave V2.

Implementation

The proposal sets the LTV and liquidation threshold ratios by calling configureReserveAsCollateral on the LendingPoolConfigurator contract at 0x311Bb771e4F8952E6Da169b425E7e92d6Ac45756, using the address and parameters specific to each token. KNCL is frozen by using the freezeReserve method of the same LendingPoolConfigurator contract.

The full list of parameter updates can be found in the forum.

Copyright

Copyright and related rights waived via CC0.