{"aip":80,"title":"Risk Parameter Updates for Aave Arc (Fireblocks) 2022-05-26","status":"Proposed","author":"Paul Lei, Jonathan Reem, Nick Cannon, Watson Fu, Tony Salvatore, Sarah Chen","shortDescription":"Risk parameter updates","discussions":"https://governance.aave.com/t/arc-risk-parameter-updates-for-aave-v2-and-aave-arc-fireblocks-2022-05-26/8299","created":"2022-06-07T00:00:00.000Z","preview":"This AIP proposes adjusting two (2) total risk parameters …","basename":"AIP-80","description":"## Simple Summary\n\nThis AIP proposes adjusting two (2) total risk parameters, including LTV and Liquidation Threshold, across one (1) Aave Arc (Fireblocks) asset. \n\n## Abstract\nThis proposal is a batch update of risk parameters to align with the [Moderate risk level](https://snapshot.org/#/aave.eth/proposal/QmT9T4Rfnh1Z2HYmMPXvtFotMK2vSxiXK8dKStg2b6n4gi) chosen by the Aave community. \n\nThese parameter updates represent Gauntlet's first set of parameter updates for the Aave Arc market.\n\n## Motivation\n\n\nThis set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.\n\nGauntlet's parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Parameter recommendations seek to optimize for this objective function. Our agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet's simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. The individual collateral pages on the [Gauntlet Risk Dashboard](https://gov.gauntlet.network/aave) cover other key statistics and outputs from our simulations that can help with understanding interesting inputs and results related to our simulations. \n\n\n## Aave Arc (Fireblocks) Parameter Changes Specification\n\nOur simulation platform indicates that increasing the capital efficiency of USDC collateral does not meaningfully increase the risk of insolvencies. Note that, on our dashboard, the Value at Risk (VaR) metric for Aave Arc is currently $0. This low risk of insolvencies is reflective of the fact that the majority of borrowing on the platform is collateralized by the same asset as the assets being borrowed. As lending market usage grows, our platform will continue to ingest up-to-date data, re-run risk simulations, and make future parameter change recommendations.\n\n![](https://i.imgur.com/hUTDeJU.png)\n\n\n## Risk Dashboard\n\n\n\nThe community should use Gauntlet's [Aave Arc Risk Dashboard](https://gov.gauntlet.network/aave_arc) to better understand the updated parameter suggestions and general market risk.\n\n\n\n## Implementation\n\nThe proposal sets the LTV and liquidation threshold ratios by calling `configureReserveAsCollateral` on the `LendingPoolConfigurator` contract at `0x311Bb771e4F8952E6Da169b425E7e92d6Ac45756`, using the address and parameters specific to each token.\n\nThe full list of parameter updates can be found in the [forum](https://governance.aave.com/t/arc-risk-parameter-updates-for-aave-v2-and-aave-arc-fireblocks-2022-05-26/8299).\n\n## Copyright\n\nCopyright and related rights waived via [CC0](https://creativecommons.org/publicdomain/zero/1.0/).\n\n*By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.*\n\n"}