Chaos Labs Risk Parameter Updates - WBTC.e on V2 and V3 Avalanche
01Summary
Proposal to reduce Aave's exposure to WBTC.e on Avalanche by freezing the asset and reducing risk parameters (Liquidation Threshold from 75% to 70%, LTV to 0%) on both V2 and V3 deployments. This aims to manage liquidity risks as WBTC.e is being phased out on Avalanche in favor of BTC.b, and will result in approximately 6 accounts totaling $15 being liquidated on V2.
- Type
- parameter change
Key changes
- Freeze WBTC.e reserve on Aave V2 Avalanche to prevent new supply(high)
- Freeze WBTC.e reserve on Aave V3 Avalanche to prevent new supply(high)
- Reduce V3 Liquidation Threshold from 75% to 70% and LTV from 70% to 0%(high)
- Reduce V2 Liquidation Threshold from 75% to 70% and LTV from 60% to 0%(high)
Notable concerns
- Approximately 6 accounts on V2 totaling $15 will be liquidated
- 67% of circulating WBTC.e supply (1,160 of 1,731 tokens) is concentrated on Aave V2 and V3
- WBTC.e liquidity on Avalanche has decreased ~30% over recent months
- Users will need to migrate positions from WBTC.e to BTC.b
Generated by Kvorum
02Description
Simple Summary
A proposal to adjust risk parameters for WBTC.e on Avalanche deployments, to limit further exposure and promote user migration to BTC.b:
- V2
- Freeze asset
- Reduce Liquidation Threshold and LTV
- V3
- Freeze asset
- Reduce Liquidation Threshold and LTV
Motivation
As the Avalanche network is transitioning away from WBTC.e, we are observing an ongoing decrease in WBTC.e liquidity on-chain, with approximately 30% of the liquidity diminishing over the past few months. At this time, the total circulating supply on Avalanche is 1,731 WBTC.e. A considerable portion, nearly 67%, of the circulating supply is concentrated on Aave Avalanche V2 and V3, with ~496 and ~664 tokens, respectively.
Given the persistence of this trend, we suggest reducing exposure on Aave and proactively modifying risk parameters for the asset. This strategy aims to:
- Avert a potential scenario where there is inadequate liquidity to facilitate liquidations in Aave deployments.
- Motivate new and existing users on Aave to transition to BTC.b, which has a stronger liquidity profile on Avalanche.
Limit New Supply
Freeze the WBTC.e reserves on V2 and V3 Avalanche.
Reduce Capital Efficiency
Additionally, as a precautionary measure and to further reduce exposure to the asset, we recommend reducing LTs and LTV, without impacting current holders:
- V3 - reduce LT to 70 % and LTV to 0.
- V2 - reduce LT to 70% and LTV to 0.
- at this time, this will lead to 6 accounts totaling $15 to be liquidated.
Usage Analysis
Currently, about 31% of the WBTC.e supply serves as collateral, primarily utilized for borrowing stablecoins, WETH, and WAVAX. A detailed breakdown of borrowing distribution is highlighted below.
In addition, in both Avalanche deployments, we haven't detected any risky positions, nor is there a significant concentration of funds in individual wallets.
Specification
V3 Avalanche
| Asset | Parameter | Current | Recommendations |
|---|---|---|---|
| WBTC.e | Liquidation Threshold | 75% | 70% |
| WBTC.e | LTV | 70% | 0% |
| WBTC.e | Freeze Reserve | NO | YES |
V2 Avalanche
| Asset | Parameter | Current | Recommendations |
|---|---|---|---|
| WBTC.e | Liquidation Threshold | 75% | 70% |
| WBTC.e | LTV | 60% | 0% |
| WBTC.e | Freeze Reserve | NO | YES |
References
- Implementation: AaveV2Avalanche, AaveV3Avalanche
- Tests: AaveV2Avalanche, AaveV3Avalanche
- Snapshot
- Discussion
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
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04Actions
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05Tally
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