Author

Chaos Labs

Overview

In light of recent events and the lack of demand, Chaos Labs recommends temporarily freezing MKR as collateral on Gearbox and reducing its LT in the WETH, WBTC, and USDC pools.

Motivation

MakerDAO/Sky yesterday proposed and passed an out-of-schedule executive vote “to protect the project from potential governance attacks.” This involved changes to the LSE-MKR-A risk parameters and a reduction in the GSM Pause Delay. There were minimal explanations provided for these changes, with the author stating that they aimed to “fortify the protocol’s defences and ensure swift, effective responses in the event of any malicious activity.” While the details of this attack vector and response become clearer, we recommend that Gearbox adopt a posture of risk mitigation.

As a result, we recommend temporarily freezing MKR as collateral on Gearbox. As we establish below, the trade-off from making this change is minimal, as there is no borrow demand against MKR collateral and, as no MKR collateralized position is currently open, setting its quota Limit to 0 will not affect any user.

Additionally, MakerDAO has recently transitioned from MKR to SKY, leading to a reduction in the circulating supply of MKR while simultaneously shifting MKR’s DEX liquidity towards SKY pairs. While SKY and MKR remain atomically convertible between them, the total supply of SKY can grow larger than the migrated MKR supply; hence, to mitigate future deviation risks, we recommend reducing MKR’s LT on Gearbox.

Specification

Credit Manager	Asset	Current Quota Limit	Recommended Quota Limit	Current LT	Recommended LT
WETH Tier 2	MKR	135	0	80%	70%
WBTC Tier 2	MKR	7.5	0	80%	70%
USDC Tier 2	MKR	500,000	0	80%	70%

Txn log

Txn log can be found here Md5 checksum is 52b90983efc51c6fb43961e87429a0c2