Chaos Labs Risk Parameter Updates - FEI on Aave V2 Ethereum
01Summary
Proposal to reduce Aave V2 Ethereum's FEI exposure by lowering Liquidation Threshold to 1%, LTV to 0%, raising Liquidation Bonus to 10%, and decreasing UOptimal to 1% to prevent new borrowing and encourage repayment of existing FEI positions.
- Type
- parameter change
Key changes
- Liquidation Threshold (LT) decreased from 75% to 1% to prevent new borrowing against FEI and trigger liquidation of underwater positions(high)
- Loan-To-Value (LTV) decreased from 65% to 0% to prevent new borrowing against FEI(high)
- Liquidation Bonus (LB) increased from 6.5% to 10% to incentivize liquidators to address underwater positions(medium)
- UOptimal decreased from 80% to 1% to increase borrowing rates and encourage loan repayment(medium)
Notable concerns
- FEI has been frozen since September 2022 with Reserve Factor at 99%
- Significant market cap decline and price fluctuations in FEI with limited liquidity
- Parameter changes will make two additional accounts eligible for liquidation totaling approximately $1,051 in value
Generated by Kvorum
02Description
Simple Summary
A proposal to update four (4) risk parameters, including Liquidation Threshold (LT), Loan-To-Value (LTV), Liquidation Bonus (LB), and UOptimal for FEI on Aave V2 Ethereum.
Motivation
As part of the ongoing risk mitigation strategies implemented for V2 Ethereum, this proposal suggests another series of risk parameter updates to minimize potential exposure to FEI. As a reminder, FEI has been frozen since September 2022, with the RF set at 99%.
Over the past months, we have witnessed a significant drop in market cap, and together with the recent price fluctuations, we recommend decreasing Aave’s FEI exposure to a minimum.
The recommended measures include the following:
- Lowering LT and LTV to zero - This will prevent new borrowings against FEI and potentially further protocol losses should FEI's price fluctuate due to limited liquidity.
- By reducing the LT to zero, two additional accounts will become eligible for liquidation, totaling a value of $1,051. The main account to be liquidated can be found here
- Raising the LB from 6.5% to 10% to provide a stronger incentive for liquidators to address underwater positions.
- Decreasing the UOptimal from 80% to 1% to increase the borrowing rate and encourage borrowers to repay their loans.
Specification
| Asset | Parameter | Current | Recommendation |
|---|---|---|---|
| FEI | LT | 75% | 1%* |
| FEI | LTV | 65% | 0 |
| FEI | LB | 6.5% | 10% |
| FEI | UOptimal | 80% | 1% |
*For technical reasons related to V2 we will set the LT 1% rather than at 0
References
03Mismatch analysis
The decoded on-chain action is a single generic execute() call to an Aave governance payload contract, which is the standard pattern for Aave V2/V3 risk parameter update proposals — the actual parameter changes (LT, LTV, LB, UOptimal) are encoded inside the payload contract's bytecode/logic rather than being visible as decoded arguments in this call. Because of this, I cannot directly cross-verify the specific numeric values (1% LT, 0% LTV, 10% LB, 1% UOptimal) claimed in the description against the calldata itself. However, this structure is expected and routine for Aave governance proposals of this type, and the description links to the actual payload source code and tests for verification. There is no evidence of a mismatched target, omitted action, or extra claim — the single action is consistent with the proposal's stated purpose of updating FEI risk parameters on Aave V2 Ethereum. Given the inability to verify exact figures from the calldata alone, confidence is low, but this is a structural limitation of how Aave payloads work, not a red flag, so I am not surfacing it as a discrepancy per the guidance to avoid false alarms on legitimate summarization/boilerplate patterns.
Generated by Kvorum
04Actions
- Target
- 0xad49…b08b
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
No forum thread is confidently linked to this proposal.
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