KVORUM
aaveSource: Aave governor v2 · #30

Liquidation Bonus Updates

executedSep 2, 2021, 11:28 PM UTCby680x683a…6c02

01Summary

AISummary by Kvorumclaude-haiku-4-5

Reduce liquidation bonuses for 10 Aave V2 assets (ZRX, WBTC, SNX, YFI, CRV, AAVE, REN, MANA, BAT, XSUSHI) by 1-2.5 percentage points to optimize the security-efficiency tradeoff and mitigate depositor losses during volatile market conditions.

Type
parameter change

Key changes

  • ZRX liquidation bonus reduced from 10% to 8%(medium)
  • WBTC liquidation bonus reduced from 10% to 9%(medium)
  • SNX liquidation bonus reduced from 10% to 9%(medium)
  • YFI liquidation bonus reduced from 15% to 12.5%(medium)
  • CRV liquidation bonus reduced from 15% to 12.5%(medium)
  • AAVE liquidation bonus reduced from 10% to 8%(medium)
  • REN liquidation bonus reduced from 10% to 9%(medium)
  • MANA liquidation bonus reduced from 10% to 8%(medium)

Notable concerns

  • Lowering liquidation bonuses too much could reduce liquidator profitability during volatile or illiquid conditions, potentially leading to cascading liquidations and systemic effects
  • Balance required between security and capital efficiency
Contracts0x311bb771e4f8952e6da169b425e7e92d6ac45756
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Read the description ↗

02Description

399 words

Simple Summary

A proposal to reduce the liquidation bonus for ten (10) Aave V2 assets.

Abstract

In Gauntlet's Market Risk Assessment, Liquidation Retrospective: May 2021, and recent ARC for Dynamic Risk Parameters we highlighted the importance of optimizing liquidation bonuses.

For background,

If the bonus is too low, then during extremely volatile or illiquid conditions, liquidators might not be profitable even with the bonus. During these times, there can also be cascading, systemic effects from a lack of liquidations. For each loan that is liquidated, liquidators purchasing the collateral and selling it causes the price to further decrease causing further liquidations. On the other hand, if the bonus is too high, suppliers are losing out on profits to liquidators. Continual monitoring and adjustment of this parameter is crucial for optimizing the security vs. capital efficiency trade-off in Aave.

Motivation

Large liquidation bonuses increase the regime in which the incentives are counterproductive. See section 6.3. Lower liquidation bonuses for a single week in May would have mitigated $4M in depositor losses while maintaining a low risk of insolvency.

User experience is another factor worth considering. Depositor losses occurred for 590 distinct users during the week of May 17-23. Mitigating losses without increasing the net insolvent value percentage or the slashing run percentage is possible.

Specification

AssetCurrent Liquidation BonusRecommended Liquidation Bonus Update
ZRX10%8%
WBTC10%9%
SNX10%9%
YFI15%12.5%
CRV15%12.5%
AAVE10%8%
REN10%9%
MANA10%8%
BAT10%9%
XSUSHI15%12.5%
account.

Implementation

The proposal sets the liquidation bonuses by calling configureReserveAsCollateral on the LendingPoolConfigurator contract at 0x311Bb771e4F8952E6Da169b425E7e92d6Ac45756, using the address and parameters specific to each token.

{
"AAVE": {"address": "0x7fc66500c84a76ad7e9c93437bfc5ac33e2ddae9", "liquidationBonus": "10800"},
"BAT": {"address": "0x0d8775f648430679a709e98d2b0cb6250d2887ef", "liquidationBonus": "10900"},
"CRV": {"address": "0xd533a949740bb3306d119cc777fa900ba034cd52", "liquidationBonus": "11250"},
"MANA": {"address": "0x0f5d2fb29fb7d3cfee444a200298f468908cc942", "liquidationBonus": "10800"},
"REN": {"address": "0x408e41876cccdc0f92210600ef50372656052a38", "liquidationBonus": "10900"},
"SNX": {"address": "0xc011a73ee8576fb46f5e1c5751ca3b9fe0af2a6f", "liquidationBonus": "10900"},
"WBTC": {"address": "0x2260fac5e5542a773aa44fbcfedf7c193bc2c599", "liquidationBonus": "10900"},
"XSUSHI": {"address": "0x8798249c2e607446efb7ad49ec89dd1865ff4272", "liquidationBonus": "11250"},
"YFI": {"address": "0x0bc529c00c6401aef6d220be8c6ea1667f6ad93e", "liquidationBonus": "11250"},
"ZRX": {"address": "0xe41d2489571d322189246dafa5ebde1f4699f498", "liquidationBonus": "10800"}
}

Copyright

Copyright and related rights waived via CC0.

03Mismatch analysis

AIMismatch analysis by Kvorumclaude-sonnet-5
Minor discrepancy

I cross-checked each of the 10 tokens in the proposal's specification table against the corresponding configureReserveAsCollateral call in the decoded calldata. For every asset, the target address matches the token's contract address, and the liquidationBonus argument (the 4th parameter) correctly converts to the recommended bonus percentage stated in the table (e.g., AAVE 10800 = 8%, CRV 11250 = 12.5%, etc.) — all ten values match exactly with no numerical discrepancies. However, the function configureReserveAsCollateral also takes LTV and liquidationThreshold as its 2nd and 3rd arguments, and every call in the calldata sets specific LTV/threshold values that are never disclosed or discussed in the proposal description, which frames the action purely as a liquidation-bonus change. Since Aave's configurator does not offer a bonus-only setter, passing LTV/threshold alongside bonus is a normal technical necessity, and the values look consistent with plausible unchanged parameters rather than a hidden policy shift. Still, delegates cannot verify from the description alone that these values are unchanged, so I flag this as a low-severity omission rather than a higher-severity value or target mismatch. No extra or missing assets, no target mismatches, and no bonus value mismatches were found. Overall this is a well-aligned proposal with only a minor completeness gap in the description.

Discrepancies

  • lowomitted in description

    The description states that the implementation JSON contains 'the address and parameters specific to each token' but only lists the liquidationBonus value for each asset. In reality, the on-chain function configureReserveAsCollateral(address,uint256,uint256,uint256) requires and sets three parameters per call — loan-to-value (LTV), liquidation threshold, and liquidation bonus — not just the bonus. The description never mentions that LTV and liquidation threshold values are also being passed in every transaction. This is a known technical requirement of the Aave V2 configurator (since there is no bonus-only setter), and the LTV/threshold values appear plausible as unchanged current values, but the description's silence on this leaves delegates unable to verify that LTV and liquidation threshold are not being altered.

    “The proposal sets the liquidation bonuses by calling `configureReserveAsCollateral`... using the address and parameters specific to each token.”

Generated by Kvorum
model: claude-sonnet-5
provider: anthropic
profile: anthropic-strong-v1
prompt: v1.0
generated: 2mo ago
Review the decoded actions ↗

04Actions

10 total
#0configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x7Fc66500c84A76Ad7e9c93437bFc5Ac33E2DDaE9",
  "1": "5000",
  "2": "6500",
  "3": "10800"
}
Calldata
#1configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x0D8775F648430679A709E98d2b0Cb6250d2887EF",
  "1": "7000",
  "2": "7500",
  "3": "10900"
}
Calldata
#2configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xD533a949740bb3306d119CC777fa900bA034cd52",
  "1": "4000",
  "2": "5500",
  "3": "11250"
}
Calldata
#3configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x0F5D2fB29fb7d3CFeE444a200298f468908cC942",
  "1": "6000",
  "2": "6500",
  "3": "10800"
}
Calldata
#4configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x408e41876cCCDC0F92210600ef50372656052a38",
  "1": "5500",
  "2": "6000",
  "3": "10900"
}
Calldata
#5configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xC011a73ee8576Fb46F5E1c5751cA3B9Fe0af2a6F",
  "1": "1500",
  "2": "4000",
  "3": "10900"
}
Calldata
#6configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x2260FAC5E5542a773Aa44fBCfeDf7C193bc2C599",
  "1": "7000",
  "2": "7500",
  "3": "10900"
}
Calldata
#7configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x8798249c2E607446EfB7Ad49eC89dD1865Ff4272",
  "1": "2500",
  "2": "4500",
  "3": "11250"
}
Calldata
#8configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x0bc529c00C6401aEF6D220BE8C6Ea1667F6Ad93e",
  "1": "4000",
  "2": "5500",
  "3": "11250"
}
Calldata
#9configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xE41d2489571d322189246DaFA5ebDe1F4699F498",
  "1": "6000",
  "2": "6500",
  "3": "10800"
}
Calldata

05Tally

Summed from votes

Voters0
VP participating0
Outcome (current)—
Current support—

06Voters

0 total
Filter:
VoterChoice% of totalRationale
470x47c1…4770For245.8K0.00%—5y ago
C10xc17c…64e1For103.3K0.00%—5y ago
100x10f8…1f92For102.6K0.00%—5y ago
320x329c…3ed4For21.9K0.00%—5y ago
450x458c…730eFor10K0.00%—5y ago
700x704d…a0dfFor4.2K0.00%—5y ago
D20xd20c…9bbaFor2.8K0.00%—5y ago
800x80dc…c146For2.7K0.00%—5y ago
A00xa0ef…2d56For80.00%—5y ago
B00xb014…bcc7For20.00%—5y ago
Showing 10

07Forum

No forum thread is confidently linked to this proposal.