Gearbox DAO

Author:

@DeSnake @apeir99n

Summary

This proposal aims to change risk parameters for v3 Mainnet deployment.

Motivation

While we witnessed quick growth of protocol’s TVL and utilization, most of this growth was induced by very few use cases. Particularly, WETH pool contributes to ~64% of total supply and borrowing USDC pool contributes to ~27% of total supply and borrowing USDT and DAI pools together contribute to 7% of total supply and borrowing GHO pool contributes to 1.5% of total supply and borrowing WBTC pool contributes to 0.5% of total supply and borrowing At the same time all WETH utilization is induced by LRT leveraging, and 93% of stablecoin pools utilization is driven by leveraging USDe and sUSDe (see charts below).

References:

https://dune.com/p_dot/gearbox-v3-pools for pool-wise supply and borrow usage https://dune.com/queries/3499396/5884967 for quota usage across all credit accounts https://dune.com/desnakeee/gearbox-quota-utilization for pool-wise quota usage

This evidence makes us consider decreasing quotas for unused tokens. This will reduce complexity of the system and amount of potential failure points while bearing no harm to the protocol’s earnings.

Technical specification

LTs & Quotas

We propose the following changes to Liquidation Thresholds and Quotas (-/- means that parameter is unchanged):

poolName	creditManagerName	tokenName	Old LT	Old Limit	New LT	New Limit
Trade USDC v3	Farm USDC	stkcvxcrvUSDFRAX-f	0,87	4500000	-/-	0
Trade USDC v3	Trade USDC Tier 1	yvWBTC	0,87	1000000	-/-	0
Trade USDC v3	Trade USDC Tier 1	yvWETH	0,87	30000000	-/-	0
Trade USDC v3	Trade USDC Tier 2	LDO	0,825	500000	0,8	-/-
Trade USDC v3	Trade USDC Tier 2	LINK	0,825	500000	0,8	-/-
Trade USDC v3	Trade USDC Tier 2	MKR	0,825	500000	0,8	-/-
Trade USDC v3	Trade USDC Tier 2	UNI	0,825	500000	0,8	-/-
Trade WBTC v3	Trade WBTC Tier 1	yvUSDC	0,87	100	-/-	0
Trade WBTC v3	Trade WBTC Tier 1	yvWBTC	0,9	25	-/-	0
Trade WBTC v3	Trade WBTC Tier 1	yvWETH	0,87	750	-/-	0
Trade WBTC v3	Trade WBTC Tier 2	LDO	0,825	7,5	0,8	-/-
Trade WBTC v3	Trade WBTC Tier 2	LINK	0,825	7,5	0,8	-/-
Trade WBTC v3	Trade WBTC Tier 2	MKR	0,825	7,5	0,8	-/-
Trade WBTC v3	Trade WBTC Tier 2	UNI	0,825	7,5	0,8	-/-
Trade WETH v3	Farm WETH	CVX	0,725	55	0	-/-
Trade WETH v3	Farm WETH	yvWETH	0,9	15000	-/-	0
Trade WETH v3	Trade WETH Tier 1	yvUSDC	0,87	2000	-/-	0
Trade WETH v3	Trade WETH Tier 1	yvWBTC	0,87	500	-/-	0
Trade WETH v3	Trade WETH Tier 1	yvWETH	0,9	15000	-/-	0
Trade WETH v3	Trade WETH Tier 2	LDO	0,825	135	0,8	-/-
Trade WETH v3	Trade WETH Tier 2	LINK	0,825	135	0,8	-/-
Trade WETH v3	Trade WETH Tier 2	MKR	0,825	135	0,8	-/-
Trade WETH v3	Trade WETH Tier 2	UNI	0,825	135	0,8	-/-

1. -/- means here that parameter doesn’t changed.
2. LT parameters change should be done via ramping procedure, that means new parameters will be linearly changed over the duration of 14 days.

The rationale behind zeroing yvWETH, yvUSDC, yvWBTC limits is as follows:

1. 80% of yvWETH is backed by stETH which pays 3.6% APR, another 20% is backed by lent WETH which earns no more than 1.6% APR. This makes its APR to be less than return of holding stETH.
2. yvUSDC currently allocated 100% of underlying USDC to lending protocols, which yield 6-7% on average, making it non competitive compared to other strategies possible on Gearbox.
3. yvWBTC historically had less than 0.2% average return which is negligibly small.

Moreover, none of yv- assets were historically utilized on Gearbox v3, which one more time reasons the possibility of setting limits to zero.

Reasons to zero stkcvxcrvUSDFRAX-f limit are as follows:

1. Not only its return is not competitive in current market conditions (~6.5% APR), but it is sufficiently smaller than the yield of comparable strategies, namely stkcvxcrvUSDC and stkcvxcrvUSDT paying 9.8% and 12.7% APR respectively.
2. Moreover it has the least TVL compared to stkcvxcrvUSDC and stkcvxcrvUSDT pools ($785k vs $13M and $12M), which means that its return will be even more diluted after any somewhat big deposit.

It’s proposed to lower LTs for LDO, LINK, MKR, UNI, CRV, CVX to make it even more safe than it was necessary historically. These assets and price feeds are pretty reliable, but this kind of overly safe parameters will allow us to focus on the most utilized use cases fine-tuning.

Liquidation premium

We propose to change liquidation premium to 5% for following Credit Managers: Trade USDC Tier2, Trade USDC Tier3, Trade WETH Tier 2, Trade WETH Tier 3, Restaking WETH, Farm WETH, Trade WBTC Tier 2, Trade WBTC Tier 3.

The liquidation premium determines how much compensation the liquidator will receive for closing a position with a low health factor. It is worth considering that the size of the liquidator’s profit is determined not only by the Credit Account’s Total Value and liquidation premium, but also by some external parameters:

• Price impact for selling collateral tokens to underlying is covered by liquidator
• Difference between spot and oracle price is covered by liquidator

The latter is especially relevant due to transition LRTs to fundamental oracles (see GIP-126) since in the case of short-term depeg liquidations can be blocked if depeg more than liquidation premium. Despite the fact that the current parameters are quite safe for Tier2,3 Credit Managers, liquidity for longer tail assets are not deep (especially taking into account Uni V3 design, when if price drops fast, there is very low liquidity in some ticks). Therefore, it seems rational to make the parameters more secure, given that this is not the main use case of the protocol.

Transaction log

Transaction log can be found here, md5 checksum is 2d9f7543a8906529373cd9c852fd3e67.

Voting

Simple Approve/Reject