Aave

Simple Summary

A proposal to adjust four (4) total risk parameters, including Loan-to-Value and Liquidation Threshold, across two (2) Aave V3 Avalanche assets.

Motivation

Chaos Labs’ Parameter Recommendation Platform runs hundreds of thousands of agent-based off-chain and on-chain simulations to examine how different configurations of Aave V3 risk parameters would behave under adverse market conditions - and find the optimal values to maximize protocol borrow usage while minimizing losses from liquidations and bad debt.

Note: As a general guideline, we limit the search range to ±3% change for all parameters as a high/low bound for a given proposal. This ensures more controlled changes and allows us to analyze their effect on user behavior before recommending further amendments to the parameters in cases the optimal configuration is outside this range.

Please find more information on the parameter recommendation methodology here.

You can also view the simulation results and breakdown for the different assets by clicking on them on this page.

Increase LTs + LTVs (WAVAX and LINK.e)

The output of our simulations reveals an opportunity to increase LTVs and LTs for WAVAX and LINK.e, resulting in improved capital efficiency of the system, with a minor effect on the projected VaR (95th percentile of the protocol losses that will be accrued due to bad debt from under-collateralized accounts over 24 hours) and EVaR (Extreme VaR, the 99th percentile of the protocol losses that will be accrued due to bad debt from under-collateralized accounts over 24 hours)

Recommendations:

Asset	Parameter	Current	Recomm.	Change
WAVAX	Liquidation Threshold	70%	73%	+3%
WAVAX	Loan-to-Value	65%	68%	+3%
LINK.e	Liquidation Threshold	65%	68%	+3%
LINK.e	Loan-to-Value	50%	53%	+3%