KVORUM
aaveSource: Aave governor v2 · #53

Risk Parameter Updates 2021-12-16

executedDec 24, 2021, 01:53 AM UTCby680x683a…6c02

01Summary

AISummary by Kvorumclaude-haiku-4-5

Adjust risk parameters across 7 Aave V2 assets (BAT, CRV, ENJ, REN, SNX, SUSHI, ZRX) by modifying LTV, liquidation thresholds, and liquidation bonuses to align with community-chosen moderate risk level. Additionally, freeze the deprecated KNCL token to accelerate KNC migration.

Type
parameter change

Key changes

  • BAT LTV increased from 70% to 75%(medium)
  • CRV Liquidation Bonus decreased from 10.0% to 8.5%(medium)
  • ENJ Liquidation Bonus decreased from 10.0% to 7.5%(medium)
  • REN LTV increased from 55% to 60% and Liquidation Threshold increased from 60% to 65%(medium)
  • SNX LTV increased from 30% to 40% and Liquidation Threshold increased from 55% to 60%(high)
  • SUSHI Liquidation Bonus decreased from 10.0% to 8.5%(medium)
  • ZRX LTV increased from 60% to 65%(medium)
  • KNCL reserve frozen to accelerate migration to new KNC contract(high)

Notable concerns

  • KNCL has significantly reduced liquidity with major exchanges halting support for deposits and trading
  • 229k KNCL tokens currently borrowed on Aave at time of proposal
  • Parameter adjustments follow recent December 4th market downturn with significant liquidations during 13% ETH price drop
Contracts0x311bb771e4f8952e6da169b425e7e92d6ac45756BATCRVENJRENSNXSUSHIZRXKNCL
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Read the description ↗

02Description

604 words

Simple Summary

A proposal to adjust nine (9) total risk parameters across seven (7) Aave V2 assets including LTV, Liquidation Threshold, and Liquidation Bonus. In addition, we propose freezing the KNCL reserve.

Abstract

This proposal is a batch update of risk parameters to align with the the Moderate risk level chosen by the Aave community. These parameter updates are a continuation of Gauntlet's regular parameter recommendations.

Motivation

This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.

Specification

The recent market downturn on the weekend of December 4th led to the most liquidations on both centralized exchanges and in liquidity protocols in the recent past. Most liquidations on the Aave protocol happened between 4:30 and 5:45 UTC when the price of ETH dropped nearly 13%. Below is a graph of liquidation by collateral and repay asset. Liquidations by collateral and repay asset Although volatility for assets is slightly higher, the abundance of liquidity and active market participants is a positive sign for the health of Aave! For example, the total value of CRV (curve dao token) liquidated was large compared to the total collateral used on Aave. Lower LTV, lower liquidation threshold, and higher liquidation bonus protect the protocol from insolvencies. However, multiple liquidations of over 400,000 USD occured in quick succession. This shows ample liquidity for liquidators even in times of high network congestion. These market events provide important data points for measuring tail risk.

For reference, previous analysis of liquidations on Aave from May 2021 can be found here: https://medium.com/gauntlet-networks/aave-protocol-liquidation-retrospective-may-2021-67c655fc1b31

Although some assets currently have higher volatility, our analysis shows that it is safe to increase borrowing parameters and decrease liquidation bonus values. Our simulations study price drops and network congestion more extreme than was seen last week, and slippage and liquidity considerations have improved.

ParameterCurrent ValueRecommended Value
BAT Loan To Value70%75%
CRV Liquidation Bonus10.0%8.5%
ENJ Liquidation Bonus10.0%7.5%
REN Loan To Value55%60%
REN Liquidation Threshold60%65%
SNX Loan To Value30%40%
SNX Liquidation Threshold55%60%
SUSHI Liquidation Bonus10.0%8.5%
ZRX Loan To Value60%65%

Freezing KNCL The KyberDAO approved the proposal to migrate KNC token contract to a new implementation on 4/20, which enables Kyber governance to upgrade KNC efficiently. As of 11/2, 177M of KNC have migrated to the new Kyber Network Crystal (KNC) and 74M of KNC are still in the old KNC Legacy (KNCL) contract. There is currently 916K KNCL supply and 229k total borrowed on Aave.

Considering that exchanges (e.g. Kraken, Crypto.com) have stopped supporting KNCL deposit and trading, the liquidity of KNCL has also been reduced. We propose freezing KNCL to speed up the KNC migration as well as eliminating the risk of keeping a less liquid deprecated asset on the platform.

Risk Dashboard

The community should use Gauntlet's Risk Dashboard to better understand the updated parameter suggestions and general market risk in Aave V2.

Implementation

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

The full list of parameter updates can be found in the forum.

Copyright

Copyright and related rights waived via CC0.

03Mismatch analysis

AIMismatch analysis by Kvorumclaude-sonnet-5
Material discrepancy

I compared each of the nine parameter changes described in the specification table against the seven configureReserveAsCollateral calls (actions 0-6). Matching token addresses to BAT, CRV, ENJ, REN, SNX, SUSHI, and ZRX, all LTV, Liquidation Threshold, and Liquidation Bonus values in the calldata precisely match the percentages stated in the prose (e.g., BAT LTV 70%->75% = 7500 bps, CRV Liquidation Bonus 10%->8.5% = 10850 meaning 8.5% bonus, REN LTV/LT both updated as described, SNX LTV/LT both updated as described, SUSHI bonus updated, ZRX LTV updated). These nine parameter updates are fully consistent with the calldata. However, the proposal also promises a separate, clearly defined action -- freezing the KNCL reserve -- which has no corresponding entry anywhere in the decoded actions list. This is a significant omission: a delegate reading the description would reasonably believe voting yes freezes KNCL, but the actual on-chain execution will not do so. Because this is a distinct, named action absent from execution (not a minor bookkeeping omission), it constitutes a material discrepancy that delegates should be warned about, even though the quantitative risk-parameter changes are otherwise fully faithful to the description.

Discrepancies

  • highomitted in description

    The proposal's prose explicitly states it will freeze the KNCL reserve, but no corresponding on-chain action (e.g., a setReserveFreeze or similar call targeting the KNCL asset) appears in the decoded calldata. Only the seven configureReserveAsCollateral calls for BAT, CRV, ENJ, REN, SNX, SUSHI, and ZRX are present. This means the described freeze action will not actually be executed if this calldata is what gets voted on.

    “We propose freezing KNCL to speed up the KNC migration as well as eliminating the risk of keeping a less liquid deprecated asset on the platform.”

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

04Actions

7 total
#0configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x0D8775F648430679A709E98d2b0Cb6250d2887EF",
  "1": "7500",
  "2": "8000",
  "3": "10750"
}
Calldata
#1configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xD533a949740bb3306d119CC777fa900bA034cd52",
  "1": "4500",
  "2": "6000",
  "3": "10850"
}
Calldata
#2configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xF629cBd94d3791C9250152BD8dfBDF380E2a3B9c",
  "1": "6000",
  "2": "7000",
  "3": "10750"
}
Calldata
#3configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x408e41876cCCDC0F92210600ef50372656052a38",
  "1": "6000",
  "2": "6500",
  "3": "10750"
}
Calldata
#4configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xC011a73ee8576Fb46F5E1c5751cA3B9Fe0af2a6F",
  "1": "4000",
  "2": "6000",
  "3": "10750"
}
Calldata
#5configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0x8798249c2E607446EfB7Ad49eC89dD1865Ff4272",
  "1": "4500",
  "2": "6000",
  "3": "10850"
}
Calldata
#6configureReserveAsCollateral(address,uint256,uint256,uint256)chain 0x1
Target
0x311b…5756
Value
0 wei
Function
configureReserveAsCollateral(address,uint256,uint256,uint256)
Arguments
{
  "0": "0xE41d2489571d322189246DaFA5ebDe1F4699F498",
  "1": "6500",
  "2": "7500",
  "3": "10750"
}
Calldata

05Tally

Summed from votes

Voters10
VP participating394.1K
Outcome (current)For
Current support100%

06Voters

10 total
Filter:
VoterChoice% of totalRationale
F60xf63e…78c8For104.8K26.58%—5y ago
C10xc17c…64e1For103.3K26.22%—5y ago
AF0xafda…3a6eFor93.4K23.71%—5y ago
DD0xdd45…4cc5For65.5K16.62%—5y ago
450x458c…730eFor10K2.54%—5y ago
340x3471…9420For10K2.54%—5y ago
680x683a…6c02For4.1K1.04%—5y ago
700x704d…a0dfFor2.9K0.74%—5y ago
090x0991…46cdFor36.90.01%—5y ago
A00xa0ef…2d56For80.00%—5y ago
Showing 10

07Forum

No forum thread is confidently linked to this proposal.