Risk Parameters for DAI Update
01Summary
This proposal reduces risk parameters (LTV and LT) for DAI and sDAI across all Aave deployments in response to MakerDAO's D3M program expansion, which has grown DAI credit lines from 0 to predicted 600 million with potential for 1 billion. LTV is decreased by 12 percentage points (e.g., from 76% to 63% on most chains), and LT is reduced conditionally at 1 percentage point per 100M D3M exposure (up to 6 points maximum). Changes are staged to align DAI parameters across chains and minimize liquidation impact.
- Type
- parameter change
Key changes
- Decrease DAI LTV by 12 percentage points across all chains (e.g., Ethereum V3 from 76% to 63%, Polygon V3 from 76% to 63%)(high)
- Decrease sDAI LTV by 12 percentage points on Ethereum and Gnosis V3 (from 76% to 63%)(high)
- Decrease DAI and sDAI LT conditionally by 1 percentage point per 100M D3M deployment, with maximum 6 percentage point reduction (from current 79-80% to recommended 72% at full deployment)(high)
- Standardize LT values across chains in first stage to align inconsistent current parameters before final reductions(medium)
- Implement staged reduction process starting with 1% LT reduction to account for initial 100M D3M deployment(medium)
Notable concerns
- MakerDAO's D3M program has unpredictably grown DAI credit lines from 0 to predicted 600M within less than a month with potential extension to 1B
- D3M liquidity injections implemented in non-battle-tested protocol with hands-off risk management and no safety module risk mitigation
- Historical precedent of reckless minting policies causing depeg events (Angle AgEUR/EURA and jEUR on Midas)
- LT reductions naturally come with potentially induced liquidations that may require modification if deemed too large
Generated by Kvorum
02Description
Simple Summary
This proposal aims to update the risk parameters for the DAI stablecoin across all Aave deployments.
Motivation
MakerDAO’s recent aggressive actions with their D3M program have resulted in a significant increase in the “D3M” credit line for DAI, growing from 0 to predicted 600 million DAI within less than a month. With the potential extension of this credit line to 1 billion DAI in the near term, the unpredictability of future governance decisions by MakerDAO raises concerns regarding the inherent risk nature of DAI as collateral.
These liquidity injections are done in a non-battle-tested protocol with a “hands off” risk management ethos and no safety module risk mitigation feature.
The Aave protocol had previous experience of the consequences of reckless minting policies at a much smaller scale, with Angle’s AgEUR (now EURA) mint into EULER a week before their hack and jEUR minting into Midas leading to the asset long-term depeg.
Given that only a fraction of DAI deposits are currently utilized as collateral on Aave, and users have ample liquidity to switch to USDC or USDT as alternative collateral options, this proposal aims to mitigate potential risks without significantly negatively impacting our user base.
Specification
Decrease DAI and sDAI LTV by 12 Percentage Points, LT 1 Percentage Point Per 100M Deployed:
Based on the details outlined in this post , there is a planned gradual reduction in the LTV ratios for DAI and sDAI on Aave V3, transitioning from 77% to 75%, accompanied by a decrease in the LT from 80% to 78% across most chains. Considering these anticipated adjustments and the maximum implied percentage of total DAI backing by (s)USDe at 12%, we conservatively recommend a linear reduction of an additional 12 percentage points in LTV. Regarding the LT, we suggest a conditional decrease of 1 percentage point for every 100M in D3M exposure, with a maximum reduction of 6 percentage points, assuming the full 600M is deployed. LT reductions naturally come with potentially induced liquidations, thus if the amount liquidated due to LT changes is deemed too large, we will modify accordingly. This process will begin with a 1% reduction from the current value to account for the initial 100M, once the initial expected decrease has been completed.
Given current inconsistencies in DAI LTs across the different chains, we will aim to align the LTs and LTVs in the first stage of this proposal. This means that in instances where the LT is currently set higher, the initial reduction would be more than the 1% suggested above. This standardization will be carefully planned to minimize the impact of LT reductions on the likelihood of liquidations.
Implemented changes
| Chain | Asset | Current Expected LTV | Recommended LTV | Current Expected LT | Recommended LT (1st stage) | Recommended LT (Last Stage) |
|---|---|---|---|---|---|---|
| V3 Ethereum | DAI | 76% | 63% | 79% | 77% | 72% |
| V3 Arbitrum | DAI | 76% | 63% | 79% | 77% | 72% |
| V3 Optimism | DAI | 75% | 63% | 80% | 77% | 72% |
| V3 Polygon | DAI | 76% | 63% | 79% | 77% | 72% |
| V3 Gnosis | WXDAI | 76% | 63% | 79% | 77% | 72% |
| V3 Avalanche | DAI.e | 75% | 63% | 80% | 77% | 72% |
| V3 Metis | m.DAI | 75% | 63% | 80% | 77% | 72% |
| V3 Ethereum | sDAI | 76% | 63% | 79% | 77% | 72% |
| V3 Gnosis | sDAI | 76% | 63% | 79% | 77% | 72% |
| V2 Ethereum | DAI | 75% | 63% | 87% | 77% | 72% |
| V2 Polygon | DAI | 75% | 63% | 80% | 77% | 72% |
| V2 Avalanche | DAI | 75% | 63% | 80% | 77% | 72% |
References
- Implementation: AaveV2Ethereum, AaveV2Polygon, AaveV2Avalanche, AaveV3Ethereum, AaveV3Polygon, AaveV3Avalanche, AaveV3Optimism, AaveV3Arbitrum, AaveV3Metis, AaveV3Gnosis
- Tests: AaveV2Ethereum, AaveV2Polygon, AaveV2Avalanche, AaveV3Ethereum, AaveV3Polygon, AaveV3Avalanche, AaveV3Optimism, AaveV3Arbitrum, AaveV3Metis, AaveV3Gnosis
- Snapshot
- Discussion
Copyright
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03Mismatch analysis
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04Actions
- Target
- 0xa761…45d0
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
- Target
- 0xdc3f…2ebb
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
05Tally
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