Aave

Simple Summary

A proposal to adjust risk parameters for WBTC.e on Avalanche deployments, to limit further exposure and promote user migration to BTC.b:

• V2
  • Freeze asset
  • Reduce Liquidation Threshold and LTV
• V3
  • Freeze asset
  • Reduce Liquidation Threshold and LTV

Motivation

As the Avalanche network is transitioning away from WBTC.e, we are observing an ongoing decrease in WBTC.e liquidity on-chain, with approximately 30% of the liquidity diminishing over the past few months. At this time, the total circulating supply on Avalanche is 1,731 WBTC.e. A considerable portion, nearly 67%, of the circulating supply is concentrated on Aave Avalanche V2 and V3, with ~496 and ~664 tokens, respectively.

Given the persistence of this trend, we suggest reducing exposure on Aave and proactively modifying risk parameters for the asset. This strategy aims to:

1. Avert a potential scenario where there is inadequate liquidity to facilitate liquidations in Aave deployments.
2. Motivate new and existing users on Aave to transition to BTC.b, which has a stronger liquidity profile on Avalanche.

Limit New Supply

Freeze the WBTC.e reserves on V2 and V3 Avalanche.

Reduce Capital Efficiency

Additionally, as a precautionary measure and to further reduce exposure to the asset, we recommend reducing LTs and LTV, without impacting current holders:

• V3 - reduce LT to 70 % and LTV to 0.
• V2 - reduce LT to 70% and LTV to 0.
  • at this time, this will lead to 6 accounts totaling $15 to be liquidated.

Usage Analysis

Currently, about 31% of the WBTC.e supply serves as collateral, primarily utilized for borrowing stablecoins, WETH, and WAVAX. A detailed breakdown of borrowing distribution is highlighted below.

In addition, in both Avalanche deployments, we haven’t detected any risky positions, nor is there a significant concentration of funds in individual wallets.

Specification

V3 Avalanche

Asset	Parameter	Current	Recommendations
WBTC.e	Liquidation Threshold	75%	70%
WBTC.e	LTV	70%	0%
WBTC.e	Freeze Reserve	NO	YES

V2 Avalanche

Asset	Parameter	Current	Recommendations
WBTC.e	Liquidation Threshold	75%	70%
WBTC.e	LTV	60%	0%
WBTC.e	Freeze Reserve	NO	YES

References

• Implementation: AaveV2Avalanche, AaveV3Avalanche
• Tests: AaveV2Avalanche, AaveV3Avalanche
• Snapshot
• Discussion

Copyright

Copyright and related rights waived via CC0.