Dynamic Risk Parameters

aip: 29 title: Dynamic Risk Parameters status: Proposed author: Nick Cannon (@inkyamze) shortDescription: Continuous market risk management for Aave V2 discussions: https://governance.aave.com/t/proposal-dynamic-risk-parameters/4854 created: 2021-07-30 updated: 2021-08-02

Simple Summary

A proposal for continuous market risk management to optimize yield, capital efficiency, and mitigate depositor losses.

Abstract

Gauntlet proposes actively managing risk parameters for all Aave V2 assets. The targets metrics to improve are risk-adjusted yield for depsitors, capital efficiency for borrowers, and the mitigation of depositor losses. Gauntlet will improve the metrics above without increasing the net insolvent value percentage or the slashing run percentage.

Motivation

Aave's Risk Framework shows the importance this community puts towards understanding and mitigating risk. Users are exposed to changing market risks at all times. Since publishing the Market Risk Assessment Gauntlet has continue to rerun our simulations. Our platform observes regular changes to the optimal risk parameters.

Rationale

See discussions for further information.

Implementation

Current Aave v2 Total $ Borrow = ~$7.09B

Current Number of Aave v2 Assets = 28

Gauntlet quarterly service fee formula = log(Number of Assets,10) * Total $ Borrow * 2.5 basis points / AAVE price = log(26,10) * $6,000,000,000 * 2.5 basis points / AAVE price ($376) = 5,645 AAVE

This AIP implements two payments to Gauntlet as outlined in the ARC, both denominated in stkAAVE. The stkAAVE is obtained by staking AAVE from the EcosystemReserve. The first payment is implemented as a direct transfer of the stkAAVE to Gauntlet. The second payment makes use of Sablier to implement a streaming vesting payment over the course of half a year. This payment can be revoked by governance using cancelStream. Specifically we make use of the following transactions:

• transfer AAVE tokens from the EcosystemReserve to the ShortExecutor using the Ecosystem Reserve Controller contract at 0x1E506cbb6721B83B1549fa1558332381Ffa61A93
• approve the stkAAVE token to stake the AAVE we transferred
• stake the AAVE into stkAAVE
• transfer the non vested portion directly to the Gauntlet
• approve the Sablier contracts to spend the remaining vesting portion of the stkAAVE
• createStream on the Sablier contract, with the Gauntlet set as the beneficiary, to stream the vesting portion of stkAAVE over six months

Exact calldata and target addresses can be viewed in the transaction which created this proposal.

Copyright

Copyright and related rights waived via CC0.