Simple Summary
For Phase 7 of the Compound v2 deprecation, Gauntlet recommends decreasing the Collateral Factor for v2 collateral assets.
Specifically, Gauntlet recommends the following changes:
- Decrease AAVE Collateral Factor from 53% to 48%
- Decrease BAT Collateral Factor from 60% to 55%
- Decrease COMP Collateral Factor from 40% to 35%
- Decrease LINK Collateral Factor from 59% to 54%
- Decrease MKR Collateral Factor from 53% to 48%
- Decrease SUSHI Collateral Factor from 47% to 42%
- Decrease YFI Collateral Factor from 55% to 50%
- Decrease ZRX Collateral Factor from 45% to 40%
Additionally, Gauntlet recommends continuing to raise the v2 USDC Reserve Factor to incentivize v2 USDC suppliers to migrate to v3. Specifically, Gauntlet recommends:
- Increase v2 USDC Reserve Factor from 45% to 60%
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.
| 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 |
|---|---|---|---|---|---|---|---|
| 0xc6a58d687d67eda6451a2f55da49104c8326497d | $124.2k | $89.9k | 91.6% | 92.31% | 1.092 | 1.083 | 8.45% |
| 0x2796cabe1b6c1f7756c55436c793094ca6e8339b | $107.6k | $60.8k | 85.09% | 87.22% | 1.175 | 1.147 | 14.29% |
| 0x87279585d52f534a2d2e453518cd7890c5762d19 | $16.7k | $11.7k | 90.23% | 91.03% | 1.108 | 1.099 | 8.19% |
| 0xc7f8689d426975ed7f97f304e512f54c0fde8d02 | $17.4k | $10.4k | 89.68% | 92.21% | 1.115 | 1.084 | 24.52% |
| 0x34bbc9a46b09283698ba7aa1c273e8b4e9f7bcc3 | $22.8k | $7.7k | 81.16% | 91.93% | 1.232 | 1.088 | 57.17% |
| 0xcd49361e9286fee25e11cb228f99b8dcd35de988 | $13.4k | $7.0k | 83.69% | 86.82% | 1.195 | 1.152 | 19.19% |
| 0x8e445422baa49c7b98645e918577de7d48280384 | $15.9k | $6.8k | 86.76% | 96.21% | 1.153 | 1.039 | 71.37% |
In total, these positions have $194k borrows.
We will continue to rerun these liquidation analyses and update the community if the Collateral Factor decreases cause any risk-off liquidations and/or relevant Health Factor decreases.
USDC Reserve Factor Changes
v2 USDC Net Earn APR is currently 6.70%, and the Ethereum v3 USDC Net Earn APR is currently 14.04%. Increasing the v2 USDC Reserve Factor from 45% to 60% aims to further incentivize v2 USDC suppliers to migrate to v3.
Next Steps
- Target on-chain proposal 1/14/24