Compound Market Downturn Risk Review (May 2022)

We wanted to provide the community with an update given the notable market downturn over the past few weeks. We have been analyzing the markets closely and have observed no meaningful insolvencies that occurred on Compound during the market crash. This report builds upon our previous Market Downturn Risk Review.

Since the start of Dynamic Risk Parameters, Gauntlet’s platform has optimized for capital efficiency to safely increase Compound’s revenue potential while maintaining risk at safe levels. While there have been no insolvencies during this market crash, Gauntlet continuously ingests on-chain data to assess market risk, which evolves as market conditions and borrower positions adjust. We will update risk parameters as ecosystem conditions change.

Liquidations

From May 8th to May 15th, Compound experienced around $63M in liquidations primarily driven by ETH. These are liquidations that were healthily absorbed by the market (i.e., did not lead to insolvency).

Insolvencies

See below for total insolvent amount on Compound:

Compound experienced around 9k more in insolvencies in the past few days largely driven by dust accounts. The below charts shows insolvent accounts on May 15 that were solvent on May 8th (i.e., new insolvent accounts). As you can see, the largest newly insolvent account was ~$300.

Appendix

For the community’s reference, see the below data over the course of April 2022. We present this data in place of our standard Monthly Risk Review, the most recent of which can be found here.

Supply changes of key collateral assets from 04/01/2022 to 04/30/2022

Borrow changes of key collateral assets from 04/01/2022 to 04/30/2022

Price changes of key collateral assets from 04/01/2022 to 04/30/2022

Liquidations breakdown by collateral from 04/01/2022 to 04/30/2022

Liquidations breakdown by account from 04/01/2022 to 04/30/2022

Top 10 liquidations breakdown by account from 04/01/2022 to 04/30/2022

Insolvent accounts on 04/30/2022

New insolvent accounts from 04/01/2022 to 04/30/2022

This shows all insolvent accounts on 04/30/2022, which were solvent on 04/01/2022. Note that the only insolvencies are from negligible dust accounts, the largest of which has $1594 supplied and the largest insolvent amount of $206.

Previous insolvent accounts from 04/01/2022 and differences up to 04/30/2022

This shows the 04/30/2022 state of all accounts which were insolvent on 04/01/2022.

Total insolvencies from 04/01/2022 to 04/30/2022

Time series of collateral-specific volatility from 04/01/2022 to 04/30/2022 for non-stablecoin assets

Using the 28 day trailing data and the Garman Klass volatility estimator, which utilizes both daily high $H_{i}$ and low $L_{i}$ prices, as well as daily opening $O_{i}$ and closing $C_{i}$ prices, the annualized volatility for each asset can be calculated as follows:

Screen Shot 2022-05-18 at 11.27.34 AM

If you are unfamiliar with the concept of volatility, please reference this writeup from Gauntlet.

Time series of collateral-specific protocol collateralization ratios from 04/01/2022 to 04/30/2022 for key assets

The average collateralization ratio for an asset is a valuable indicator of how risky borrowers behave.

Time series of liquidation volume from 04/01/2022 to 04/30/2022

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