Risk Parameter Updates Aave V3 Ethereum
01Summary
Proposal to adjust 14 risk parameters across 6 Aave V3 Ethereum assets (WBTC, WETH, WSTETH, LINK, DAI, USDC) by increasing Loan-to-Value and Liquidation Threshold values (mostly +0.5% to +3%) and decreasing Liquidation Penalty values for WBTC and LINK. Simulations project ~$3.6M increase in protocol borrowing with no increase in projected losses (VaR and Extreme VaR).
- Type
- parameter change
Key changes
- WBTC Loan-to-Value increased from 70% to 73% (+3%)(high)
- WBTC Liquidation Threshold increased from 75% to 78% (+3%)(high)
- WBTC Liquidation Penalty decreased from 6.25% to 5% (-1.25%)(medium)
- WETH Loan-to-Value increased from 80% to 80.5% (+0.5%)(medium)
- WETH Liquidation Threshold increased from 82.5% to 83% (+0.5%)(medium)
- DAI Loan-to-Value increased from 64% to 67% (+3%)(high)
- DAI Liquidation Threshold increased from 77% to 80% (+3%)(high)
- USDC Loan-to-Value increased from 74% to 77% (+3%)(high)
Notable concerns
- Parameter changes remain within ±3% guardrail for controlled adjustments
- Changes based on Chaos Labs simulations projecting negligible effect on protocol losses
Generated by Kvorum
02Description
Simple Summary
A proposal to adjust fourteen (14) total risk parameters, including Loan-to-Value, Liquidation Threshold, and Liquidation Bonus, across six (6) Aave V3 Ethereum 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, WSTETH, LINK, DAI and USDC on V3 Ethereum, 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 ~$3.6M, with no increase in VaR and Extreme VaR compared to simulations with the current parameters.
Specification
| Asset | Parameter | Current | Recommended | Change |
|---|---|---|---|---|
| WETH | Liquidation Threshold | 82.5% | 83% | +0.5% |
| WETH | Loan-to-Value | 80% | 80.5% | +0.5% |
| WBTC | Liquidation Threshold | 75% | 78% | +3% |
| WBTC | Loan-to-Value | 70% | 73% | +3% |
| WBTC | Liquidation Penalty | 6.25% | 5% | -1.25% |
| DAI | Liquidation Threshold | 77% | 80% | +3% |
| DAI | Loan-to-Value | 64% | 67% | +3% |
| USDC | Liquidation Threshold | 76% | 79% | +3% |
| USDC | Loan-to-Value | 74% | 77% | +3% |
| LINK | Liquidation Threshold | 65% | 68% | +3% |
| LINK | Loan-to-Value | 50% | 53% | +3% |
| LINK | Liquidation Penalty | 7.5% | 7% | -0.5% |
| WSTETH | Liquidation Threshold | 79.5% | 80% | +0.5% |
| WSTETH | Loan-to-Value | 68.5% | 69% | +0.5% |
References
Proposal payload implementation
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
The proposal follows the standard Aave V3 governance pattern where the single on-chain action is a delegatecall to a pre-deployed payload contract's execute() function. The decoded calldata only shows this generic execute() call and does not expose the individual setLiquidationThreshold/setLTV/setLiquidationBonus parameter values that are hardcoded inside the payload contract (referenced in the description's GitHub link to AaveV3EthRiskParams_20230529.sol). Because the actual numeric parameter changes are not visible in the decoded calldata provided, I cannot directly cross-verify the fourteen specific percentage changes listed in the Specification table against on-chain values. The target address and function pattern are consistent with legitimate Aave governance payloads, and there is no evidence of a mismatch, but the inability to inspect the payload's internal calls limits verification. Given this, I mark the assessment as consistent with low confidence, since the discrepancy-detection is not meaningfully possible from the single execute() action alone. No contradictions were found between what is described and what is executable, but this should be flagged as a lower-confidence review that would benefit from decoding the payload contract's internal transactions for a full verification of each parameter change.
Generated by Kvorum
04Actions
- Target
- 0xfa64…dc18
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
05Tally
Summed from votes
06Voters
| Voter | Choice | % of total | Rationale | ||
|---|---|---|---|---|---|
| 320x329c…3ed4 | For | 232.4K | 60.57% | — | 3y ago |
| B80xb83b…cf5c | For | 81.4K | 21.22% | — | 3y ago |
| B90xb933…8dd1 | For | 41.7K | 10.86% | — | 3y ago |
| 160x1664…36d9 | For | 16.9K | 4.41% | — | 3y ago |
| 5B0x5b3b…7c98 | For | 7.3K | 1.90% | — | 3y ago |
| 180x1855…98ba | For | 3K | 0.78% | — | 3y ago |
| A00xa06c…61f7 | For | 678.8 | 0.18% | — | 3y ago |
| EA0xea17…6676 | For | 238.4 | 0.06% | — | 3y ago |
| E40xe4da…8bd0 | For | 33.5 | 0.01% | — | 3y ago |
| 350x35f4…94dc | For | 20.8 | 0.01% | — | 3y ago |
| A00xa0ef…2d56 | For | 8.3 | 0.00% | — | 3y ago |
| 6C0x6ceb…9877 | For | 2.9 | 0.00% | — | 3y ago |
| 430x430e…d472 | For | 1.1 | 0.00% | — | 3y ago |
| EC0xecd0…6d74 | For | 0.2 | 0.00% | — | 3y ago |
| EC0xec97…86ef | For | 0.1 | 0.00% | — | 3y ago |
| 190x193c…fc93 | For | 0.1 | 0.00% | — | 3y ago |
| 100x1016…1c34 | Against | 0 | 0.00% | — | 3y ago |
| F20xf212…686a | For | 0 | 0.00% | — | 3y ago |
07Forum
- [ARFC] - Chaos Labs Risk Parameter Updates - Aave V3 Ethereum - 2023.05.18 ↗discourse · high confidence
Arguments for
- Chaos Labs' agent-based simulations show that raising LTVs and Liquidation Thresholds for WBTC, WETH, WSTETH, LINK, DAI and USDC would increase capital efficiency and borrow usage by ~$3.6M with negligible impact on VaR/EVaR.— ChaosLabs
- On-chain liquidity is adequate to support potential liquidations under the updated parameters, and no outsized positions were found that would undermine the recommendations.— ChaosLabs
- A delegate expressed direct support for the proposed parameter updates.— 0xkeyrock.eth
Arguments against
None surfaced.
Notable participants
- ChaosLabsProposer who presented the risk parameter analysis, simulation results, and recommendations, and later posted the Snapshot vote link.
- 0xkeyrock.ethDelegate who voiced support for the proposal.
Generated by Kvorum
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