Compound V2: Risk Parameter Updates 2022-12-08

Simple Summary

Gauntlet proposes no changes to Compound V2 parameters this week.


Gauntlet’s simulation engine has ingested the latest market and liquidity data. These recommendations are Gauntlet’s regular parameter recommendations as part of Dynamic Risk Parameters.


This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets. Gauntlet has published a blog post on our parameter recommendation methodology to provide more context to the community.

Our parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Our parameter recommendations seek to optimize for this objective function. Gauntlet’s agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to user positions, asset volatility, asset correlation, asset collateral usage, DEX/CEX liquidity, trading volume, expected market impact of trades, liquidator behavior). Our simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. As such, the charts and tables shown below may help understand why some of the param recs have been made but should not be taken as the only reason for recommendation. Our individual collateral pages on the dashboard cover other key statistics and outputs from our simulations that can help with understanding other interesting inputs and results related to our simulations.

Top 30 borrowers’ aggregate positions & borrow usages

Top 30 borrowers’ entire supply

Top 30 borrowers’ entire borrows

Gauntlet’s prior proposal to implement borrow caps for non-stablecoin assets in Compound was recently executed. These lower borrow caps significantly reduce price manipulation risk without meaningful impact on UX or protocol revenue, given that none of the borrow caps have been maxed out, and the vast majority of borrows on Compound (97%+) are from stablecoins or blue chip tokens.

We also recommended adding borrow caps to stablecoins but received community pushback. As such, we are continuing to assess the risk-reward tradeoffs of stablecoin borrow caps. Setting low stablecoin borrow caps would decrease the risk of certain attack vectors but could negatively impact UX and reduce protocol revenue. Setting high stablecoin borrow caps likely wouldn’t significantly reduce risk or affect UX and revenue, but it may interfere with integrations with other protocols.

Next Steps

Given that Gauntlet is proposing no parameter changes, no governance proposal will be created for this forum post.

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Quick Links

Analytics Dashboard
Risk Dashboard
Gauntlet Parameter Recommendation Methodology
Gauntlet Model Methodology

Gauntlet launched an insolvency refund for Compound that contains a portion of our payment stream that can be clawed back in the event of insolvencies due to market risk. Since our last recommendation there have been no new insolvencies in Compound, Gauntlet’s Insolvency Refund vault is still live and can be seen here 0x7667095Caa12b79fCa489ff6E2198Ca01fDAe057

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