ARC: Risk Parameter Updates 2021-12-16

Reading time saved: 3 minutes

4 replies, 1938 views, 12 likes



Pauljlei proposed adjusting risk parameters for seven Aave V2 assets, including LTV, Liquidation Threshold, and Liquidation Bonus, and freezing the KNCL reserve, in response to the recent market downturn. Fig queried the reduction in liquidation bonus and suggested a "Collateral Safety" analysis addition to the Aave Protocol UI, while Pauljlei clarified the reduction is based on liquidators' ability to trade in extreme conditions and revealed a resolved dashboard bug that didn't affect parameter recommendations.

The discussion primarily revolved around a proposal by Pauljlei to adjust nine risk parameters across seven Aave V2 assets, including Loan To Value (LTV), Liquidation Threshold, and Liquidation Bonus. This proposal was motivated by the recent market downturn on December 4th, which led to a significant number of liquidations. Despite the volatility, Pauljlei believes it's safe to increase borrowing parameters and decrease liquidation bonus values. The proposal also includes freezing the KNCL reserve to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets1.

Fig responded to the proposal with a query about the reduction in the liquidation bonus across a few assets, wondering if this suggests that Gauntlet expects more liquidations in the near future. They also proposed adding a "Collateral Safety" analysis to the Aave Protocol UI to better inform users of the risks in borrowing2. Pauljlei clarified that the lowering of liquidation bonuses is not reflective of liquidation frequency, but rather it's based on the ability of liquidators to safely trade out liquidated collateral in extreme market conditions4. They also expressed interest in integrating with the Aave Protocol UI and welcomed collaboration from the Aave developer team4.

In addition, Pauljlei informed the community about a resolved bug in their dashboard data aggregation. The bug attributed the liquidated amount to the borrowed assets instead of the collateral assets, causing the dashboard to show a different Value at Risk (VaR) distribution. However, this bug did not affect the parameter recommendations or the parameter recommendation methodology, and only affected dashboard metrics. The overall VaR level remains unchanged5. The discussion concluded with Pauljlei sharing a link to the Snapshot vote for the proposal3.

Posted 2 years ago

Last reply 2 years ago

Summary updated 2 months ago

Last updated 03/12 08:01