Compound

Simple Summary

A proposal to adjust two (2) parameters for two (2) Compound assets.

Background

This proposal is a batch update of risk parameters to align with the Moderate risk level chosen by the Compound community. These parameter updates are the ninth of Gauntlet’s regular parameter recommendations as part of Dynamic Risk Parameters.

Full proposal and forum discussion

Motivation and Specification

This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.

Our parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Our parameter recommendations seek to optimize for this objective function. For more details, please see Gauntlet’s Parameter Recommendation Methodology and Gauntlet’s Model Methodology.

Dashboard

Gauntlet has launched the Compound Risk Dashboard. The community should use the Dashboard to better understand the updated parameter suggestions and general market risk in Compound.

Value at Risk represents the 95th percentile insolvency value that occurs from simulations we run over a range of volatilities to approximate a tail event.

Liquidations at Risk represents the 95th percentile liquidation volume that occurs from simulations we run over a range of volatilities to approximate a tail event.

Even though these changes result in less than 1 bp of increased Borrow Usage given the current TVLs, they will improve long-term capital efficiency as the protocol grows and more users supply YFI and SUSHI.