Gauntlet recommendation for WETH Uopt on Ethereum v3

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Gauntlet proposed a modification to AIP-306 to reduce the WETH Uopt from 90% to 80% or 85% due to potential risks during high volatility periods, but the community decided to maintain the current 90% WETH Uopt. Despite a detailed risk analysis and a snapshot for voting initiated by Gauntlet, the community's preference for growth and competitiveness led to the decision to not proceed with the proposed reduction.

The discussion revolved around a proposal by Gauntlet to modify the AIP-306, specifically to reduce the WETH Uopt from 90% to 80% or 85% due to potential risks associated with 100% WETH utilization during periods of high volatility. Gauntlet provided a comprehensive analysis comparing the riskiest WETH collateralized positions with the riskiest USDC collateralized positions, demonstrating the potential excess risk involved with a 90% WETH Uopt1. However, MarcZeller disagreed, arguing that the current Uoptimal has been optimized for growth and competitiveness, and that the risk-reward balance favors maintaining the status quo2.

Gauntlet further emphasized their point by highlighting the potential risks associated with 100% WETH utilization during sudden market shocks, comparing it with the less risky scenario of USDC at 90% Uopt3. They also initiated a snapshot for the WETH Uopt updates, announcing that voting would commence in a day and last for three days4. Gauntlet's detailed analysis of the potential impact of a 30% drop in WETH price on the loan-book revealed that with a 90% Uopt, the bad debt would be around $900k, with 85% Uopt it would be around $500k, and with 80% Uopt there would be no bad debt due to lack of liquidation capacity5.

Michigan_Blockchain raised questions about the impact of volatility on WETH utilization and the speed of debt repayment, and also questioned whether the proposal to decrease WETH slope 1 to 3.3% would be offset by the proposal discussed in the previous post6. Despite Gauntlet's recommendation and analysis, they decided not to proceed with the proposal to return WETH Uopt to 80% in response to the community's preference7. This decision marks the conclusion of the discussion, with the community opting to maintain the current WETH Uopt at 90%.

Posted 3 months ago

Last reply 2 months ago

Summary updated 2 months ago

Last updated 03/12 08:00