Compound

Simple Summary

A proposal to adjust one (1) parameter for one (1) Compound V2 asset.

We recommend decreasing SUSHI collateral factor from 73% to 70%. The community has aligned on a risk off framework.

Background

Gauntlet’s simulation engine has ingested the latest market and liquidity data. These recommendations are Gauntlet’s regular parameter recommendations as part of Dynamic Risk Parameters and align with the Moderate risk level chosen by the Compound community.

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 understand better 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.

These parameter changes decrease borrow usage by 1 basis point, decrease VaR by $8.15k and decrease SUSHI VaR by 14.3%

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