Risk Parameter Updates for Aave Arc (Fireblocks) 2022-05-26

Simple Summary

This AIP proposes adjusting two (2) total risk parameters, including LTV and Liquidation Threshold, across one (1) Aave Arc (Fireblocks) asset.

Abstract

This proposal is a batch update of risk parameters to align with the Moderate risk level chosen by the Aave community.

These parameter updates represent Gauntlet's first set of parameter updates for the Aave Arc market.

These parameter updates were proposed in AIP 81. The vote was unanimously YAE but did not reach quorum. As such, Gauntlet re-proposes these updates in this AIP.

Motivation

This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.

Gauntlet's parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Parameter recommendations seek to optimize for this objective function. Our agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet's simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. The individual collateral pages on the Gauntlet Risk Dashboard cover other key statistics and outputs from our simulations that can help with understanding interesting inputs and results related to our simulations.

Aave Arc (Fireblocks) Parameter Changes Specification

Our simulation platform indicates that increasing the capital efficiency of USDC collateral does not meaningfully increase the risk of insolvencies. Note that, on our dashboard, the Value at Risk (VaR) metric for Aave Arc is currently $0. This low risk of insolvencies is reflective of the fact that the majority of borrowing on the platform is collateralized by the same asset as the assets being borrowed. As lending market usage grows, our platform will continue to ingest up-to-date data, re-run risk simulations, and make future parameter change recommendations.

Risk Dashboard

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

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.

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

Copyright

Copyright and related rights waived via CC0.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.