Simple Summary
For Phase 13 of the Compound v2 deprecation, Gauntlet recommends the following changes:
- Decrease AAVE Collateral Factor from 28% to 18%
- Decrease BAT Collateral Factor from 40% to 35%
- Decrease LINK Collateral Factor from 34% to 28%
- Decrease MKR Collateral Factor from 28% to 23%
- Decrease SUSHI Collateral Factor from 22% to 17%
- Decrease UNI Collateral Factor from 60% to 50%
- Decrease YFI Collateral Factor from 30% to 20%
- Decrease ZRX Collateral Factor from 20% to 10%
- Decrease USDC Collateral Factor from 85.5% to 84.5%
- Decrease USDC Reserve Factor from 60% to 25%
- Increase USDT Reserve Factor from 7.5% to 15%
- Reduce DAI Daily Supply Comp Reward from 25 to 0.
- Reduce DAI Daily Borrow Comp Reward from 25 to 0.
Analysis
Risk-off Liquidations
The recommended Collateral Factor decreases would not currently cause new liquidatable user positions.
Relevant Users with Low Health Factors
When determining what user positions will be most affected by the recommended Collateral Factor decreases, we assess the following:
- Size of the position
- Health Factor of the position
- How much the position’s Health Factor will change due to the Collateral Factor changes
1) Size of the position
We only include positions that have > $5k borrows.
2) Health Factor of the position
We only include positions whose Health Factors are less than 1.17 (Borrow Usage greater than 85%) after the Collateral Factor decreases.
3) How much the position’s Health Factor will change due to the Collateral Factor changes
We only show accounts that become > 5% closer to becoming liquidatable due to the Collateral Factor decreases. For example, a user may have a position with a Health Factor of 1.1, with 99% of their supply in ETH and 1% in COMP. In this case, leaving ETH Collateral Factor unchanged and decreasing COMP CF by 5% will not significantly impact this user’s Health Factor. As a result, we will not show these types of positions.
The below figure shows the top 4 highest borrowing user positions whose Health Factors are less than 1.17 (Borrow Usage greater than 85%) and become > 5% closer to becoming liquidatable after the Collateral Factor decreases.
The table below shows all positions > $5k borrows whose Health Factors are less than 1.17 (Borrow Usage greater than 85%) and become > 5% closer to becoming liquidatable after the Collateral Factor decreases. In total, these positions have $598k borrows.
| User Address | Total Supply Balance (USD) | Total Borrow Balance (USD) | Initial Borrow Usage | New Borrow Usage | Initial Health Factor | New Health Factor | % Closer to Liquidation |
|---|---|---|---|---|---|---|---|
| 0x53311150764f7eb2999022ed1aa5a8c17bb5fc57 | $929.0k | $308.8k | 83.1% | 94.98% | 1.203 | 1.053 | 70.3% |
| 0x2d5f61b3efa11cf6150a57a04bb24063ba6b2bfd | $502.8k | $133.2k | 77.89% | 91.32% | 1.284 | 1.095 | 60.74% |
| 0xa66d568cd146c01ac44034a01272c69c2d9e4bab | $376.4k | $116.6k | 77.44% | 88.5% | 1.291 | 1.13 | 49.02% |
| 0x5e376f43d6c5f6a0424a6849335600d5cd8ee8b7 | $44.1k | $11.2k | 74.98% | 87.91% | 1.334 | 1.138 | 51.68% |
| 0xd8ff835d432bd6de2a507203e430380343615e56 | $31.9k | $11.1k | 79.78% | 87.73% | 1.253 | 1.14 | 39.32% |
| 0x5d47e871f81f84d3154aec772bcce14973112c69 | $38.0k | $10.7k | 78.14% | 86.54% | 1.28 | 1.156 | 38.43% |
| 0x87279585d52f534a2d2e453518cd7890c5762d19 | $10.9k | $6.6k | 88.94% | 90.13% | 1.124 | 1.11 | 10.76% |
Gauntlet wants to inform the community about two significant BAT positions that are nearing liquidation. The largest of these, identified as 0x5331115076, holds an outstanding borrow position of $308,000 in WETH, secured by $929,000 in BAT collateral. Notably, this position has remained static since March 2023, with only minor liquidations occurring in May and June of this year. Gauntlet notified the community about this position in their last deprecation post and will move forward with lowering the CF for BAT.
Gauntlet has conducted simulations using our tooling to assess the impact of a complete liquidation of the position, estimating approximately $603,000 in collateral liquidations with no resulting insolvencies. $360k BAT swap to USDC incurs 20% slippage.
In light of the recent initialization of the USDT Comet, Gauntlet recommends adjusting the reserve factor to 15% to further incentivize the migration of USDT to the v3 Comet. This adjustment would effectively double the current reserve factor thus decrease USDT supply APY by 7%.
As detailed in our analysis, “Gauntlet v2 Deprecation Retro Analysis - (2024-05-07),” increasing the reserve factor in the USDC market has led to higher returns on reserves but has also resulted in an outflow of supply from the v2 markets. This action was taken to migrate users to v3 Comet. The current TVL for the USDC Comet stands at over $1 billion so this migration is near completion. This USDC outflow has begun to adversely affect reserve growth. Therefore, Gauntlet advises reducing the reserve factor for USDC to mitigate the decline in USDC liquidity until the community is ready to fully deprecate from the v2 markets.
The reduction in DAI incentives is being executed in anticipation of the initialization of the DAI Comet. In conjunction with the allocation of COMP tokens as rewards for the Comet, Gauntlet recommends the removal of the v2 incentives. This strategy aims to incentivize users to transition to the v3 DAI Comet.
Next Steps
- Welcome feedback from the community