Risk Parameter Updates Aave V3 Arbitrum
01Summary
Proposal to adjust 9 risk parameters across 4 Aave V3 Arbitrum assets (WETH, WBTC, DAI, USDC) by increasing Loan-to-Value and Liquidation Threshold values by 1-3% while reducing WBTC's Liquidation Penalty by 3%, designed to improve capital efficiency with projected ~$510,000 increase in borrows and no increase in projected protocol losses.
- Type
- parameter change
Key changes
- WETH Liquidation Threshold increased from 82.5% to 85% (+2.5%)(medium)
- WETH Loan-to-Value increased from 80% to 82.5% (+2.5%)(medium)
- WBTC Liquidation Threshold increased from 75% to 78% (+3%)(medium)
- WBTC Loan-to-Value increased from 70% to 73% (+3%)(medium)
- WBTC Liquidation Penalty decreased from 10% to 7% (-3%)(medium)
- DAI Liquidation Threshold increased from 80% to 82% (+2%)(medium)
- DAI Loan-to-Value increased from 75% to 77% (+2%)(medium)
- USDC Liquidation Threshold increased from 85% to 86% (+1%)(low)
Notable concerns
- Parameter changes increase LTV and LT thresholds which could increase protocol exposure to bad debt if market conditions deteriorate faster than simulated
- Risk parameter adjustments are limited to ±3% per proposal as a controlled approach
Generated by Kvorum
02Description
Simple Summary
A proposal to adjust nine (9) total risk parameters, including Loan-to-Value, Liquidation Threshold, and Liquidation Bonus, across four (4) Aave V3 Arbitrum assets.
Motivation
Chaos Labs’ Parameter Recommendation Platform runs hundreds of thousands of agent-based off-chain and on-chain simulations to examine how different Aave V3 risk parameters configurations would behave under adverse market conditions - and find the optimal values to maximize protocol borrow usage while minimizing losses from liquidations and bad debt.
Note: As a general guideline, we limit the proposed changes by ±3% for all parameters as a high/low bound for a given proposal. This ensures more controlled changes and allows us to analyze their effect on user behavior before recommending further amendments to the parameters if the optimal configuration is outside this range.
Please find more information on the parameter recommendation methodology here.
You can also view the simulation results and breakdown for the different assets by clicking on them on this page.
The output of our simulations reveals an opportunity to increase LTVs and LTs for WBTC, WETH, USDC, and DAI on V3 Arbitrum, resulting in improved capital efficiency of the system, with a negligible effect on the projected VaR (95th percentile of the protocol losses that will be accrued due to bad debt from under-collateralized accounts over 24 hours) and EVaR (Extreme VaR, the 99th percentile of the protocol losses that will be accrued due to bad debt from under-collateralized accounts over 24 hours)
Simulating all changes jointly yields a projected borrow increase of ~$510,000, with no increase in VaR and Extreme VaR compared to simulations with the current parameters.
Specification
The following risk parameter proposal is presented below:
| Asset | Parameter | Current | Recommended | Change |
|---|---|---|---|---|
| WETH | Liquidation Threshold | 82.5% | 85% | +2.5% |
| WETH | Loan-to-Value | 80% | 82.5% | +2.5% |
| WBTC | Liquidation Threshold | 75% | 78% | +3% |
| WBTC | Loan-to-Value | 70% | 73% | +3% |
| WBTC | Liquidation Penalty | 10% | 7% | -3% |
| DAI | Liquidation Threshold | 80% | 82% | +2% |
| DAI | Loan-to-Value | 75% | 77% | +2% |
| USDC | Liquidation Threshold | 85% | 86% | +1% |
| USDC | Loan-to-Value | 80% | 81% | +1% |
References
Proposal payload implementation
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
The decoded calldata contains a single action: a call to execute(address) targeting an Aave governance executor, passing in the address 0x3A4F2A6c7E1E641AFAd6300553a0Bb82D6c46a2e. This address exactly matches the 'Deployed proposal payload' link provided in the proposal's References section, which is the standard pattern for Aave V3 risk parameter proposals — a single on-chain action that delegates execution to a purpose-built payload contract containing the specific parameter-setting logic (setLiquidationThreshold, setLtv, setLiquidationBonus, etc. for WETH, WBTC, DAI, and USDC as described in the specification table). Since the target address in the calldata matches precisely what the description references as the implementation payload, and the description explicitly links to the payload's source code and test suite for verification of the granular parameter changes, this is consistent with standard practice. I cannot independently decode the internal logic of the payload contract from the single execute() call to verify each of the nine individual parameter values, so confidence is medium rather than high. However, there is no sign of a target mismatch, omitted action, or extra action — the on-chain action matches what the description describes as the mechanism for enacting these changes, and no red flags (unexpected recipients, unrelated function calls, suspicious targets) are present.
Generated by Kvorum
04Actions
- Target
- 0x2e2b…05f1
- Value
- 0 wei
- Function
- execute(address)
- Arguments
{ "0": "0x3A4F2A6c7E1E641AFAd6300553a0Bb82D6c46a2e" }- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
No forum thread is confidently linked to this proposal.
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