Compound V3 wETH Comet: Risk Parameter Updates 2023-02-08

[pauljlei]

Simple Summary

A proposal to adjust one (1) risk parameter (supply cap) across one (1) Compound V3 wETH Comet asset.

Specification

Parameter	Current Value	Recommended Value
cbETH Supply Cap	20,000	30,000

Abstract

These parameter updates are a continuation of Gauntlet’s regular parameter recommendations as part of Dynamic Risk Parameters.

Motivation

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.

Top 30 borrowers’ entire supply

Top 30 borrowers’ entire borrows

The cbETH supply cap of 20,000 is 99.8% utilized, and we propose increasing the supply cap to 30k.

Daily open, high, low, close ratio between cbETH and WETH from 2022-08-24

cbETH-WETH price has been trending upwards, reflecting the market’s confidence in a successful Shanghai upgrade rollout. As a result, there are decreasing depegging risks.

Additionally, liquidity for cbETH/ETH is sufficient as of 2023-02-08, with 4k cbETH able to be swapped for ETH at 1.6% slippage across DEXs, as shown below. This allows liquidators to quote blocks of 4,000 cbETH from the protocol and sell with a profit after discount.

Next Steps

• Targeting on-chain proposal next week.

^{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.}

[ClairvoyantLabs]

Recommended Value 35000

[RapidsCapital]

The current market dynamics is confusing.

One can deposit cbETH with a LTV of 90% with emode enable and borrow ETH at an apy of 3.67%.
While on compound the borrowing cost is 4.48%.

The deposits capacity has not been reached on AAVE. So I don’t see any incentive for ppl to borrow more on compound in the near future.

[MathisGD]

I agree with @RapidsCapital, and I think that there is room to decrease a little bit the borrowing rate at optimal utilization. What does Gauntlet think about also updating the IRM, now that we have a little bit more data on this market ?

[ponzinomics]

Emode borrowing at 90% LTV on Aave is only for wstETH and is not available for cbETH

[NFLyuck]

when we are going to vote on this?

[pauljlei]

Proposal is now up:

Compound

[pauljlei]

Given the recent developments, wanted to provide some additional color for transparency to the community:

• Even though DEX liquidity has dried up recently, there is still high liquidity ($15M) on CEXs.
• Our models show that it would require around > 7% depeg for insolvencies to occur.

As such, we will not pull down the proposal. If the community has a particularly conservative risk tolerance (e.g., if the community wants to heavily discount CEX liquidity), then the community may wish to vote no on this proposal.

[pauljlei]

To clarify: the on-chain vote for this forum post, which is Proposal 149, accidentally links to the wrong forum post. Proposal 149 is the on-chain vote for this forum post.

[Warden_Finance]

In favor of this proposal.

• Liquidity for all of DEX pools containing cbETH is standing at $24M as of right now.
• Slippage for cbETH → USDC is sitting under 2% for trades up to $8M. Liquidating the biggest cbETH collateral position wouldn’t be a major issue.
• Increasing supply cap doesn’t pose significant risk for the protocol given current market usage.

Source: cbETH risk assesment on Warden Finance platform

[ClairvoyantLabs]

Recommended Value 38000