Compound Liquidity Analysis - Gauntlet Risk Parameter Update (03/20/2023)


  • No changes to supply caps for v3 USDC comets.
  • For ETH v3 comet, no risk-off changes to supply and borrow caps.
  • For Compound v2, pause supplies of COMP.

Following the recent volatility in USDC, Gauntlet’s risk management platform has reviewed how liquidity conditions have evolved and is providing an update to the community. We do not recommend any changes to the supply caps for the v3 USDC comets at this time. Our models indicate supply caps are sufficiently low for the volatile collateral assets, and the only borrowable asset is USDC.

We also do not recommend any risk-off changes to the supply caps for the v3 ETH comet.

The greatest amount of risk for Compound is in the v2 protocol, as supply caps don’t exist, thereby subjecting the protocol to greater risk from price manipulation and market downturn.

Currently supply is paused in Compound v2 for the following collateral assets:

  • BAT
  • MKR
  • YFI
  • ZRX

However, we could also look into pausing supply or decreasing CFs for the following other assets:

  • AAVE
  • COMP
  • UNI

Our conservative supply cap methodology suggests taking the minimum of the following values:

  • Minimum supplied tokens needed to break even in a long attack
  • The token amount required to move DEX pricing by 25%
  • 30% of the circulating token supply on-chain

Our recommendations for Comp v2 are as follows:

  • Pause supplies of COMP.
  • Keep AAVE, SUSHI, and UNI markets unpaused.

These liquidity measures have improved to about 90% of levels seen before USDC’s recent price volatility. Note that the limiting factor in our supply cap methodology for these tokens is DEX liquidity, which is a consideration for risk of failed liquidations from market downturns as opposed to price manipulation risk (which considers 2% market depth). Given the current supply of COMP is above our recommended conservative supply cap, we recommend pausing supply for COMP. Note that we do not recommend pausing the supply of COMP on Compound III USDC market.

That said, we do not recommend pausing supply for AAVE, SUSHI, OR UNI. AAVE’s supply is well below our conservative supply cap, and the current SUSHI’s supply is near the level of our conservative supply cap. And while our conservative supply cap for UNI ($13M) is below its current supply ($29M), the majority of UNI supply is from one user ($18M) that has 0% borrow usage. Thus, the majority of supplied UNI is not at risk of failed liquidations in the event of a market downturn.