Adjust Risk Parameters for Aave V2 and V3 on Polygon
01Summary
This proposal significantly reduces risk exposure on Aave's Polygon deployments by setting Loan-to-Value (LTV) ratios to 0% for major stablecoins (DAI, USDC, USDC.e, USDT) on both V2 and V3, increasing Liquidation Thresholds on certain assets, and removing Safety Module support for Polygon V3. These changes aim to protect Aave users from bridge vulnerability risks on Polygon ahead of an upcoming Polygon governance proposal that would alter the risk profile of bridged assets. The proposal also coordinates user migration incentives to other networks like Sonic.
- Type
- parameter change
Key changes
- Set LTV to 0% for DAI, USDC.e, USDT, and USDC on Polygon V3(high)
- Set LTV to 0% for USDC.e and DAI on Polygon V2(high)
- Increase Liquidation Threshold (RF) for USDC.e (60%), USDT (25%), and USDC (20%) on Polygon V3(medium)
- Remove Aave V3 Polygon from Safety Module and cancel umbrella deployment(high)
- Coordinate user migration incentives to alternative L2 networks including Sonic (20M$ incentive plan with 10% for migration)(medium)
Notable concerns
- Proposal responds to Polygon bridge vulnerability risks highlighted by major historical bridge hacks (Ronin $624M, BNB Bridge $586M, Wormhole $326M, etc.)
- Aave has previously suffered indirect impacts from Multichain and Harmony bridge hacks
- Setting stablecoin LTVs to 0% will severely restrict borrowing capacity for affected assets on Polygon
- User migration coordination required across multiple parties (ChaosLabs, LlamaRisk, TokenLogic, BGDLabs, AaveLabs) and incentive programs
Generated by Kvorum
02Description
Simple Summary
This proposal will update the risk parameters for Aave V2 and V3 instances on the Polygon network. The adjustments are in response to an upcoming proposal that will significantly impact the risk profiles of bridged assets within the Polygon network.
Motivation
Polygon governance was evaluating a proposal that would redefine the risk profile of bridged assets on the Polygon network. This change could have substantial implications for the risk profiles of Aave V2 and V3 deployments on Polygon PoS.
Historically, bridge vulnerabilities have caused the largest losses in the DeFi ecosystem, including:
- Ronin - $624M
- BNB “Bridge” - $586M
- Wormhole - $326M
- Nomad - $190M
- Multichain - $126M
- Harmony - $100M
The Aave ecosystem has experienced both indirect and direct impacts from bridge vulnerabilities, notably the Multichain and Harmony bridge hacks. Additionally, depositing user funds into unsafe protocols has historically resulted in significant losses. For example, the Angle Protocol deposited EURA funds into Euler a week before its hack, which caused EURA to lose its peg temporarily, impacting Aave users.
This AIP aims to mitigate potential losses for Aave users by:
- Soliciting immediate feedback from risk service providers (@ChaosLabs and @LlamaRisk) to determine appropriate adjustments to risk parameters.
- Engaging @TokenLogic to design a user position migration initiative, leveraging Merit (rewards for closing positions on Polygon and reopening equivalent positions on other networks).
- Inviting L2 networks interested in attracting Aave Polygon users to participate in Merit co-incentive programs.
Sonic team announced a 20m$ incentives plan for their TEMP CHECK with 10% allocated for migration incentives.
- Seeking feedback from @bgdlabs to migrate Aave Governance V3 voting infrastructure to a more secure L2 network.
- Requesting support from @AaveLabs to develop front-end migration tools and provide Merit support for a seamless user experience.
Specification
The following recommendations are proposed to mitigate risk and incentivize migration from the Polygon network:
@ChaosLabs recommend the following risk parameters change:
| Deployment | Asset | Current LTV | Proposed LTV | Current RF | Proposed RF |
|---|---|---|---|---|---|
| Polygon V3 | DAI | 63% | 0% | 25% | - |
| Polygon V3 | USDC.e | 75% | 0% | 50% | 60% |
| Polygon V3 | USDT | 75% | 0% | 10% | 25% |
| Polygon V3 | USDC | 75% | 0% | 10% | 20% |
| Polygon V2 | USDC.e | 75% | 0% | 99.9% | - |
| Polygon V2 | DAI | 63% | 0% | 99.9% | - |
- Remove support for Aave V3 Polygon in the Safety Module and cancel the umbrella deployment on Polygon.
References
- Implementation: AaveV2Polygon, AaveV3Polygon
- Tests: AaveV2Polygon, AaveV3Polygon
- 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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06Voters
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