Risk 🔎

gov.gauntlet.network/aave Google Form

Gauntlet’s Parameter Recommendation Methodology Gauntlet’s Model Methodology

Risk Parameter Updates:

this AIP

AIP-75 has been passed and executed.

Due to market conditions around UST and related oracle unreliability, Gauntlet proposed freezing UST.

Due to uncertainty around the stETH peg, Gauntlet also proposed increasing stETH liquidation threshold to 81% and decreasing stETH LTV to 69%.

This allows borrowers using stETH as collateral with more buffer in case stETH continues to depeg, and thus decreases the chances of liquidation cascades that lead to insolvency on the Aave platform. stETH LTV has also been decreased, so new positions will not be able to take on riskier positions using stETH as collateral. Our analysis indicated that an 81% liquidation threshold for stETH should allow for the protocol to withstand an additional 10% depeg from stETH and ETH price. Gauntlet's simulations of the Aave protocol indicated that a decrease in LTV to between 66-69% and an increase in liquidation threshold to 81-82% could significantly decrease liquidation volume as well as total insolvencies while minimally decreasing capital efficiency.

Market Downturn Risk Review:

this Risk Review

We wanted to provide the community with an update given the notable market downturn over the past few weeks. We have been analyzing the markets closely and have observed no meaningful insolvencies that occurred on Aave V2 during the market crash.

From May 8th to May 15th, Aave v2 experienced around $109M in liquidations primarily driven by ETH and WBTC. These are liquidations that were healthily absorbed by the market (i.e., did not lead to insolvency).

Aave v2 experienced no major insolvencies other than several minor dust accounts, with the largest account being just ~$400 in insolvency.