ARC: Risk Parameter Updates 2022-04-22

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Pauljlei proposed adjustments to five risk parameters across four Aave V2 assets, aiming to maintain the protocol's overall risk tolerance while balancing specific asset trade-offs. The proposed changes, based on Gauntlet's agent-based simulations, include adjustments to Loan to Value and Liquidation Bonus/Threshold for SNX, STETH, UNI, and USDC, with the final decision to be determined by a community Snapshot vote.

The discussion primarily revolved around the proposal for risk parameter adjustment put forth by Pauljlei. The proposal suggested modifications to five risk parameters, including Loan to Value (LTV), Liquidation Threshold, and Liquidation Bonus across four Aave V2 assets. This proposal is an extension of Gauntlet’s regular parameter recommendations and is designed to align with the Moderate risk level chosen by the Aave community. The objective is to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets1.

The recommendations by Gauntlet are driven by an optimization function that balances three core metrics: insolvencies, liquidations, and borrow usage. These recommendations are based on agent-based simulations using varied input data, including asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior1.

The proposed changes include adjusting the Loan To Value for SNX from 45% to 49% and for STETH from 70% to 73%. The Liquidation Bonus for UNI is proposed to be increased from 7.5% to 9.0%, and the Liquidation Threshold for UNI and USDC is proposed to be increased from 70% to 75% and 86% to 88% respectively1. To decide on these changes, Pauljlei initiated a Snapshot vote for the community to weigh in2. The discussion concluded with the initiation of the vote, and the results will determine the next steps.

Posted 2 years ago

Last reply 2 years ago

Summary updated 2 months ago

Last updated 08/12 04:39