Risk Parameter Updates 2022-03-31
01Summary
Proposal to adjust risk parameters (LTV, Liquidation Threshold, Liquidation Bonus) for three Aave V2 assets (DAI, LINK, USDC) to align with the community-chosen Moderate risk level, and to freeze the legacy KNC token to accelerate migration to the new KNC contract and reduce protocol risk from a less liquid deprecated asset.
- Type
- parameter change
Key changes
- Freeze legacy KNC (KNCL) token to speed up migration to new KNC contract and eliminate risk from deprecated less liquid asset(high)
- Adjust DAI collateral parameters: LTV to 77%, Liquidation Threshold to 80%, Liquidation Bonus to 10.5%(medium)
- Adjust LINK collateral parameters: LTV to 70%, Liquidation Threshold to 78%, Liquidation Bonus to 10.63%(medium)
- Adjust USDC collateral parameters: LTV to 85.5%, Liquidation Threshold to 86%, Liquidation Bonus to 10.45%(medium)
Notable concerns
- Legacy KNC currently has $2.9M supplied and $900K borrowed on Aave V2; freezing may impact users with active positions
- Multiple exchanges have already stopped supporting KNCL deposits and trading, reducing its liquidity
Generated by Kvorum
02Description
Simple Summary
A proposal to adjust six (6) total risk parameters including LTV, Liquidation Threshold, and Liquidation Bonus across three (3) Aave V2 assets. In addition, Gauntlet recommends freezing legacy KNC.
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.
Gauntlet's parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Parameter recommendations seek to optimize for this objective function. Our agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to, asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet's simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. The individual collateral pages on the Gauntlet Risk Dashboard cover other key statistics and outputs from our simulations that can help with understanding interesting inputs and results related to our simulations.
Specification
Our recent market downturn report showed that many collaterals are resilient to insolvencies, as our simulation models have predicted. We will continue to adjust risk parameters to drive increases in capital efficiency while maintaining protocol risk at safe levels.
Risk Dashboard
The community should use Gauntlet's Risk Dashboard to better understand the updated parameter suggestions and general market risk in Aave V2.
Freezing Legacy KNC
The KyberDAO approved the proposal to migrate KNC token contract to a new implementation on 4/20/2021, which enables Kyber governance to upgrade KNC efficiently. As of 3/28/2022, roughly 195M of KNC have migrated to the new Kyber Network Crystal (KNC) and 57M of KNC are still in the old KNC Legacy (KNCL) contract. There are currently $2.9M KNCL supplied and $900K total borrowed on Aave v2.
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.
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
The proposal describes two categories of actions: (1) freezing the legacy KNC (KNCL) reserve, and (2) updating LTV, Liquidation Threshold, and Liquidation Bonus (6 total parameter values across LTV+LT+LB fields, or arguably 9 values across 3 assets — description calls it 'six total risk parameters' which loosely matches 3 assets × the LTV/LT/LB triad framing used elsewhere in Aave risk proposals) via configureReserveAsCollateral on the specified LendingPoolConfigurator address. The calldata shows exactly this: action 0 freezes the KNCL address explicitly named in the description (0xdd974d5c2e2928dea5f71b9825b8b646686bd200), and actions 1-3 call configureReserveAsCollateral on the same configurator contract address named in the description, for three distinct, well-known Aave-listed assets (DAI, LINK, USDC), each setting LTV/LT/LB values. The target contract address matches exactly what's stated in the Implementation section. The description does not itemize the specific per-asset percentages, instead deferring to an external forum link for the 'full list of parameter updates' — this is legitimate summarization rather than a discrepancy, since Gauntlet proposals routinely reference forum posts for granular figures. No contradictory, missing, or extra actions are present in the calldata relative to the prose's structural claims. Confidence is medium rather than high because the exact numeric parameter values cannot be independently verified against the linked forum post, but the action count, target contract, and freeze action all line up correctly.
Generated by Kvorum
04Actions
- Target
- 0x311b…5756
- Value
- 0 wei
- Function
- freezeReserve(address)
- Arguments
{ "asset": "0xdd974D5C2e2928deA5F71b9825b8b646686BD200" }- Calldata
- Target
- 0x311b…5756
- Value
- 0 wei
- Function
- configureReserveAsCollateral(address,uint256,uint256,uint256)
- Arguments
{ "0": "0x6B175474E89094C44Da98b954EedeAC495271d0F", "1": "7700", "2": "8000", "3": "10500" }- Calldata
- Target
- 0x311b…5756
- Value
- 0 wei
- Function
- configureReserveAsCollateral(address,uint256,uint256,uint256)
- Arguments
{ "0": "0x514910771AF9Ca656af840dff83E8264EcF986CA", "1": "7000", "2": "7800", "3": "10630" }- Calldata
- Target
- 0x311b…5756
- Value
- 0 wei
- Function
- configureReserveAsCollateral(address,uint256,uint256,uint256)
- Arguments
{ "0": "0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48", "1": "8550", "2": "8600", "3": "10450" }- Calldata
05Tally
Summed from votes
06Voters
| Voter | Choice | % of total | Rationale | ||
|---|---|---|---|---|---|
| C10xc17c…64e1 | For | 103.3K | 30.71% | — | 5y ago |
| F60xf63e…78c8 | For | 91.1K | 27.07% | — | 5y ago |
| B40xb4f7…d47c | For | 60K | 17.83% | — | 5y ago |
| 510x511e…4709 | For | 58.5K | 17.40% | — | 5y ago |
| 680x683a…6c02 | For | 10.3K | 3.06% | — | 5y ago |
| 070x0703…961b | For | 10K | 2.97% | — | 5y ago |
| 880x880c…abe6 | For | 1.6K | 0.48% | — | 5y ago |
| 3A0x3a25…e9d2 | For | 1.3K | 0.39% | — | 5y ago |
| A50xa519…c81b | For | 293.5 | 0.09% | — | 5y ago |
| C00xc028…1634 | For | 2 | 0.00% | — | 5y ago |
| DB0xdb31…eab4 | For | 1.2 | 0.00% | — | 5y ago |
| 4D0x4d47…3ad9 | For | 0.1 | 0.00% | — | 5y ago |
07Forum
No forum thread is confidently linked to this proposal.
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