To guide best practices to the Community, Gauntlet aims to provide a standard framework for assessing market risk when listing assets and enabling assets as collateral. Managing collateral listings is essential to the growth of the protocol. As new assets in DeFi proliferate and older assets fall out of favor, Aave must list and delist assets to maintain its usefulness as a protocol. Given 2 weeks of notice and strong community buy-in, Gauntlet will conduct risk assessments prior to new assets being listed.

This interplays with Aave’s standard asset listing instructions and is focused specifically on market risk and how Gauntlet will support the asset listing process in Aave.

Throughout the asset listing and collateral enablement processes, Gauntlet's goal is to ensure that insolvency and liquidity risks are minimized and that when liquidations occur, they can be done so healthily with incentivized liquidators. In order to be unbiased, Gauntlet will not explicitly support any asset listing but instead provides the below framework as guidance for the community.

Asset listing

Update 8/25/22: Given the snapshot was in favor of having non-zero LTV to start, we will assist by giving risk parameters from the start as described in the Collateral Enablement section.

Update 10/17/22: Note that we would strongly recommend not having collateral enabled by default. Even though some assets may make more sense to enable as collateral in the beginning, for a large portion of them, there is very little downside to enabling as collateral after a few weeks of just having the asset available for borrowing. This allows us to gauge how much utility the asset is providing to Aave independent of whether it is collateral.

Gauntlet will assess a given asset's liquidity and other market characteristics to be added to the protocol. We ask that the party putting forward the proposal for asset listing include the following data:

Gauntlet will relay our findings to the community and make parameter recommendations for Reserve Factor.

We recommend that LTV and Liquidation Threshold be set to 0 on the initial listing. Our goal with this initial analysis is to ensure that liquidations will be feasible with the amount of supply and borrow expected to be added initially.

Reserve Factor

The Reserve Factor is more straightforward on the initial listing. We generally recommend 10% for stablecoins and 20% for non-stablecoin assets. We are developing a more comprehensive reserve factor framework to aid the protocol in reserves growth for sustaining the DAO, but for initial listing, it would be prudent to have reserve factors in line with other existing assets in Aave V2.

Other considerations on initial listing

In Aave V2 there is a lack of levers to control risk on initial asset listing. Allowing or Disallowing borrows is a binary value. Supply/Borrow caps currently do not exist (until V3). This means that on initial listing there are not many risk controls to mitigate infinite mint attacks or other mechanism issues with the asset to be listed.