KVORUM
aaveSource: Aave governor v2 · #233

Aave Stablecoin E-mode changes for V3 Avalanche, Optimism, Polygon, and Arbitrum

executedMay 26, 2023, 06:46 PM UTCby680x683a…6c02

01Summary

AISummary by Kvorumclaude-haiku-4-5

Proposal to reduce Stablecoin E-mode risk parameters on Aave V3 across four chains (Avalanche, Optimism, Polygon, Arbitrum): lower Liquidation Threshold from 97.5% to 95%, lower Loan-to-Value from 97% to 93%, and maintain Liquidation Bonus at 1%.

Type
parameter change

Key changes

  • Lower Stablecoin E-mode Liquidation Threshold (LT) from 97.5% to 95% on Avalanche, Optimism, Polygon, and Arbitrum(high)
  • Lower Stablecoin E-mode Loan-to-Value (LTV) from 97% to 93% on Avalanche, Optimism, Polygon, and Arbitrum(high)
  • Stablecoin E-mode Liquidation Bonus (LB) remains at 1% across all four chains(medium)

Notable concerns

  • Users are recommended to adjust their positions accordingly in response to these parameter changes
Contracts0x142DCAEC322aAA25141B2597bf348487aDBd596d0x24bdAcf6bbEBAf567123Da16CDb79A266597e92B0xF22c8255eA615b3Da6CA5CF5aeCc8956bfF07Aa80xfc7b55cc7c5bd3ae89ac679c7250ab30754c5cc5
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Read the description ↗

02Description

539 words

Summary

To optimize risk/reward tradeoffs, change Stablecoin E-mode parameters to 95% LT, 93% LTV, 1% LB.

Please see Gauntlet's E-Mode methodology here for the full forum discussion.

Motivation

On Aave V3, E-mode requires multiple considerations, including mitigating tail risks to protocols, optimizing user experience, and allowing on-chain liquidity to remain robust. E-mode, in particular, unlocks capital efficiency with specific risk tradeoffs.

Specification

These changes apply to V3 Avalanche, Optimism, Polygon, and Arbitrum.

The complete list of updates are:

  • Avalanche:
    1. Lower Stablecoin E-Mode LT from 97.5% to 95%.
    2. Lower Stablecoin E-Mode LTV from 97% to 93%.
  • Optimism:
    1. Lower Stablecoin E-Mode LT from 97.5% to 95%.
    2. Lower Stablecoin E-Mode LTV from 97% to 93%.
  • Polygon:
    1. Lower Stablecoin E-Mode LT from 97.5% to 95%.
    2. Lower Stablecoin E-Mode LTV from 97% to 93%.
  • Arbitrum:
    1. Lower Stablecoin E-Mode LT from 97.5% to 95%.
    2. Lower Stablecoin E-Mode LTV from 97% to 93%.

Note that the Stablecoin E-Mode LB is already 1% across all four aforementioned chains, and that Stablecoin E-Mode has category ID = 1 across all four aforementioned chains.

We recommend that users adjust their positions accordingly.

Implementation

The proposal implements changes on Aave V3 Optimism, Polygon, and Arbitrum using the following pre-deployed payloads:

Changes on Avalanche can be implemented using the pre-deployed steward located at 0xfc7b55cc7c5bd3ae89ac679c7250ab30754c5cc5

Copyright

Copyright and related rights waived via CC0.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos. This message is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Gauntlet Networks Inc. No reference to any specific security constitutes a recommendation to buy, sell or hold that security or any other security. Nothing in this report shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this report constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed in this report should not be taken as advice to buy, sell or hold any security. The information in this report should not be relied upon for the purpose of investing. In preparing the information contained in this report, we have not taken into account the investment needs, objectives and financial circumstances of any particular investor. This information has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this information and investments discussed may not be suitable for all investors. Any views expressed in this report by us were prepared based upon the information available to us at the time such views were written. Changed or additional information could cause such views to change. All information is subject to possible correction. Information may quickly become unreliable for various reasons, including changes in market conditions or economic circumstances.

03Mismatch analysis

AIMismatch analysis by Kvorum

A calldata-vs-description analysis is not generated yet. Review the decoded actions →

04Actions

3 total
#0execute(address)chain 0x1
Target
0xd1b3…cfa3
Value
0 wei
Function
execute(address)
Arguments
{
  "0": "0x142DCAEC322aAA25141B2597bf348487aDBd596d"
}
Calldata
#1execute(address)chain 0x1
Target
0x158a…d45b
Value
0 wei
Function
execute(address)
Arguments
{
  "0": "0x24bdAcf6bbEBAf567123Da16CDb79A266597e92B"
}
Calldata
#2execute(address)chain 0x1
Target
0x5f5c…6711
Value
0 wei
Function
execute(address)
Arguments
{
  "0": "0xF22c8255eA615b3Da6CA5CF5aeCc8956bfF07Aa8"
}
Calldata

05Tally

Summed from votes

Voters10
VP participating521.4K
Outcome (current)For
Current support100%

06Voters

10 total
Filter:
VoterChoice% of totalRationale
320x329c…3ed4For231K44.31%—4y ago
620x62a4…816aFor82.4K15.81%—4y ago
130x13bd…8548For81.4K15.61%—4y ago
B80xb83b…cf5cFor81K15.54%—4y ago
B90xb933…8dd1For41.7K7.99%—4y ago
180x1855…98baFor3K0.58%—4y ago
A00xa06c…61f7For7530.14%—4y ago
3E0x3ec6…cb63For99.90.02%—4y ago
EA0xea17…6676For39.60.01%—4y ago
E40xe459…e666For0.50.00%—4y ago
Showing 10

07Forum

AIForum synthesis by Kvorumclaude-sonnet-5
sentiment · mixedthread · constructive

Arguments for

  • Restricting stablecoin E-mode to only highly-correlated assets (USDC, DAI, FRAX) with conservative LT/LTV parameters reduces tail risk of cascading insolvencies from depeg events like the SVB/USDC incident.— Pauljlei, WintermuteGovernance, fig, bgdlabs
  • USDT should be excluded because historical data shows it lacks positive/healthy correlation with USDC and other stablecoins, creating outsized risk in a shared E-mode pool.— Pauljlei
  • A more inclusive E-mode (retaining USDT, MAI, agEUR, etc.) with a lower, more conservative liquidation threshold better serves the wide range of use cases (arbitrage, shorting weaker stablecoins, FX trading) while still reducing risk relative to the status quo.— ChaosLabs, WintermuteGovernance, sakulstra, ghostlyenergy
  • A meaningful LT-LTV spread (buffer) protects less sophisticated retail borrowers from being liquidated during normal price noise and gives them time to adjust positions.— ChaosLabs
  • Being proactive about reducing risk, even if it forces some liquidations, is preferable to waiting for a larger future depeg event, provided it's done transparently and with advance notice.— bgdlabs, Pauljlei
  • Gradually derisking E-mode via phased parameter reductions (rather than abrupt full changes) minimizes user impact while still achieving the target risk parameters.— ChaosLabs, sakulstra
  • Non-USD pegged assets like agEUR and EURS should be removed from E-mode since they are unlikely to be mean-reverting or correlated with USD stablecoins.— ChaosLabs, Pauljlei

Arguments against

  • Correlation alone is an inadequate/potentially spurious metric for including or excluding assets; mean-reversion/stationarity testing is more appropriate, and reported negative correlations for USDT are insufficient grounds for exclusion.— ChaosLabs
  • Lowering LTV (as opposed to LT) does little to reduce protocol bad-debt risk and mainly hurts capital efficiency and user experience, since sophisticated users can still borrow up to LT regardless of LTV.— Pauljlei
  • A narrow LT-LTV spread (as recommended by Gauntlet) fails to protect retail borrowers from being liquidated during ordinary price deviations, unlike a wider spread which absorbs more volatility before triggering liquidation.— ChaosLabs
  • Restricting E-mode to only DAI/USDC/FRAX effectively creates a 'USDC E-mode' that eliminates legitimate use cases like EUR/USD arbitrage and shorting weaker stablecoins (e.g., USDT), pushing users to other protocols.— ghostlyenergy, sakulstra, raj1
  • Excluding USDT specifically is problematic given it is the largest stablecoin by market cap, disproportionately limiting options for a large user base and creating competitive disadvantage versus other protocols.— raj1, ChaosLabs
  • Removing assets from E-mode is operationally very difficult/risky since it forces immediate liquidations on live positions, making it the most sensitive action in the protocol.— bgdlabs, sakulstra, lbsblockchain
  • The proposal process itself was rushed and lacked internal alignment between risk providers before going to Snapshot, causing confusion and requiring a redo of the vote.— MarcZeller, ChaosLabs, inkyamze

Unresolved concerns

  • How will the future collateral composition changes for DAI (e.g., MakerDAO's Endgame plan) affect its correlation with USDC and thus the validity of including it in a stablecoin E-mode long-term?— WintermuteGovernance, fig, Pauljlei
  • What is the actual intended use-case for stablecoin E-mode (arbitrage vs. correlated borrowing vs. FX trading), and should that determine which assets/parameters are chosen — this was never fully resolved by the community.— sakulstra, ghostlyenergy, Pauljlei
  • Users with large USDT-collateralized positions were not given adequate advance notice or clear rationale for why USDT was excluded, and worried about unfair, insufficiently-timed liquidations.— raj1
  • The technical difficulty/risk of removing assets from E-mode (versus just changing parameters) was never fully solved, leading Gauntlet to defer the asset-removal component of Option 1/3 indefinitely.— Pauljlei, bgdlabs
  • Implementation of approved Avalanche parameter changes was delayed for months past the AIP timeline, with no clear resolution on when/how the Guardian would execute them.— Pauljlei, Gauntlet

Notable participants

  • PauljleiGauntlet's lead author of the original proposal and methodology, who managed the iterative Snapshot process, liquidation reporting, and final implementation decisions.
  • ChaosLabsCompeting risk manager who proposed an alternative methodology (inclusive E-mode with lower LT), challenged Gauntlet's LTV reasoning, and pushed for a Snapshot option reflecting their approach.
  • WintermuteGovernanceEarly commenter who raised the DAI/USDC correlation concern and supported the more inclusive Option 1.
  • sakulstraRaised foundational questions about the actual use-case for stablecoin E-mode and suggested gradual derisking of parameters instead of asset removal.
  • ghostlyenergyOutlined the various real-world use cases for stablecoin E-mode (EUR shorting, USDT shorting, arbitrage) that would be lost under a restrictive design.
  • bgdlabsProvided technical perspective on the risks and sensitivity of removing assets from E-mode versus adjusting parameters.
  • MarcZellerRepresented the ACI; initially voted for a balanced option but switched to NAY after concluding the proposal needed more discussion/maturity.
  • inkyamzeFacilitated Snapshot vote publication and helped mediate between Gauntlet and Chaos Labs during disagreements.
  • raj1A community/user voice who repeatedly pressed for more notice and justification regarding USDT's exclusion and its impact on affected users.
  • lbsblockchainAsked clarifying questions about parameter robustness and the difficulty of removing/adjusting E-mode assets.
Generated by Kvorum
model: claude-sonnet-5
provider: anthropic
profile: anthropic-strong-v1
prompt: v1.0
generated: 2mo ago
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