Simple Summary

On Aave V3, isolation mode requires multiple considerations, including mitigating tail risks to protocols, optimizing user experience, and allowing on-chain liquidity to remain robust. Here, Gauntlet provides 2 options for recommendations to mitigate the risk tradeoffs.

Full forum discussion can be found here.

Methodology

We aim to isolate assets that are susceptible to infinite mint attacks, possess non-standard token functionality, or may otherwise have inherent and unpredictable risks. The debt ceiling is designed to restrict protocol exposure to price swings and potential resulting insolvencies.

Gauntlet’s methodology for isolation mode is described here.

Application of Methodology to Aave V3 Avalanche, Polygon, and Arbitrum

This Snapshot vote will have the following options:

• Conservative
• Aggressive
• Abstain
• Nay

We recommend the following changes to the isolated debt ceiling across the Aave v3 deployments:

Notice that these recs would cease borrowing against EURS on Polygon but would not affect current user positions.

Next Steps:

• Following Snapshot vote, we will publish AIP.