Aave

---

title: “Chaos Labs Risk Parameter Updates” author: “Chaos Labs” discussions: “https://governance.aave.com/t/arfc-chaos-labs-risk-parameter-updates-aave-v2-ethereum-2023-08-09/14404”

Simple Summary

A proposal to:

(1) Reduce the Liquidation Threshold (LT) and Loan-To-Value (LTV) for fourteen (14) frozen collateral assets on Aave V2 Ethereum.

(2) Increase Reserve Factors for collateral assets on Aave V2 Ethereum.

Motivation

In line with our ongoing commitment to reducing the potential risks associated with V2 markets and promoting migration to V3, we suggest a phased wind-down of the frozen V2 markets. The following proposal is part of a series of proposals to reduce capital efficiency across V2 collateral assets.

The previous iteration of proposals:

• [ARFC] Chaos Labs Risk Parameter Updates - Aave V2 Ethereum - 2023.6.23
• [ARFC] Chaos Labs - Incremental Reserve Factor Updates - Aave V2 Ethereum

LT Reductions

Implementing a gradual decrease in LTs effectively diminishes the borrowing power for the existing markets. The community has aligned on the aggressive option in the Snapshot, which suggested a LT configuration that optimizes reductions without significantly increasing the number of accounts eligible for liquidation. Following decline in the assets prices since the initial Snapshot, we have modified the proposal to be more conservative than the initially approved update. Please note LINK and DPI are omitted from this proposal, as reducing their LTs would put larger positions at risk of liquidation.

As Liquidation Threshold reductions may lead to user accounts being eligible for liquidations upon their approval, we want to clarify the full implications to the community at each step. Chaos Labs will publicly communicate the planned amendments and list of affected accounts leading to the on-chain execution.

LTV Decrease

For assets where the LTV is not 0, we recommend maintaining the same buffer as the current configuration.

RF Increase

In line with our V2 to V3 migration plan, we propose another iteration of RF increases on Aave V2 Ethereum. By progressively increasing the reserve factors, the interest rate for supplying these assets on V2 will be increasingly less attractive, thus encouraging suppliers to transition positions to V3. In this proposal, we suggest an increase of 5% for all V2 collateral assets.

Specification

Frozen Assets:

Asset	Cur LT	Rec LT	Current LTV	Rec LTV	Current RF	Rec RF
BAL	55%	35%	0	0	30%	35%
BAT	52%	40%	0	0	30%	35%
CVX	40%	35%	0	0	30%	35%
DPI	42%	No Change	0	0	30%	35%
ENJ	60%	52%	0	0	30%	35%
MANA	62%	54%	0	0	45%	50%
REN	40%	32%	0	0	30%	35%
xSUSHI	60%	57%	0	0	45%	50%
YFI	55%	50%	0	0	30%	35%
ZRX	45%	42%	0	0	30%	35%
LINK	83%	No Change	70%	No Change	25%	30%
1INCH	50%	40%	40%	30%	25%	30%
UNI	77%	70%	65%	58%	25%	30%
SNX	59%	49%	46%	36%	40%	45%
MKR	64%	50%	59%	45%	25%	30%
ENS	57%	52%	47%	42%	25%	30%

Unfrozen Assets

Asset	Current RF	Recommended RF
FRAX	25%	30%
GUSD	15%	20%
LUSD	15%	20%
sUSD	25%	30%
USDC	15%	20%
USDP	15%	20%
USDT	15%	20%
CRV	25%	30%
WBTC	25%	30%
ETH	20%	25%

References

• Implementation: Ethereum
• Tests: Ethereum
• Snapshot
• Discussion

Copyright

Copyright and related rights waived via CC0.