Risk Parameter Updates 2022-01-07

Simple Summary

A proposal to adjust one (1) parameter for one (1) Compound asset.


This proposal is a batch update of risk parameters to align with the Moderate risk level chosen by the Compound community. These parameter updates are the sixth of Gauntlet’s regular parameter recommendations as part of Dynamic Risk Parameters.


This set of parameter updates seeks to level set assets to a Moderate risk level of the protocol while making risk trade-offs between specific assets. Note that some are different from the original risk level consensus check as market conditions have changed.


As shown on our dashboard, these changes will slightly increase Value at Risk, but will also increase borrow usage and long-term reserves.

Parameter Current Value Recommended Value
ETH Collateral Factor 80% 82.5%

The increase in reserves as a result of these increases in CFs is $423k.

Results are calculated using the below user behavior assumptions in response to the CF updates. We would note that our platorm is ingesting actual on-chain elasticity and comparing it to these assumptions.


Gauntlet has launched the Compound Risk Dashboard. The community should use the Dashboard to better understand the updated parameter suggestions and general market risk in Compound.

As shown on our dashboard, these changes will increase Value at Risk by $130.9M (10.9%) and increase the borrow usage by 5 basis points. We would emphasize that all the VaR is projected to be liquidations that can be safely absorbed by the market.

On our dashboard we are also working on breaking out the VaR between liquidations and insolvencies so that users can visualize the split, as this is something the community has asked for in our user studies.

Next Steps

While Gauntlet expects to initiate a governance proposal for this set of parameter recommendations on Monday 1/10, we will cancel the vote should changes in our daily simulations dictate it necessary.


We’re leaning towards voting no on this change. There doesn’t seem to be evidence to support the change. As well, the previous forum thread from December 23rd put VaR at $574m, and this thread now puts it at $1.2B.

Perhaps VaR is misunderstood or the wrong statistic to focus on. If you guys could clarify your methodology, that would be helpful.

Thanks, @GFXlabs for the feedback. All of the increase in VaR is projected to be liquidations that can be safely absorbed by the market. To better inform users of our methodology, we are working on breaking out the VaR between liquidations and insolvencies on our Dashboard so that users can see the split, as this is something that users have asked for in our studies. We will push those changes as well as publish a deep dive on VaR early this year.

If it can be “safely absorbed by the market,” it doesn’t seem to be “Value at Risk.”

We look forward to seeing your improved dashboard, but it is hard to support it until clarity is given to the driving statistics behind the CF change.

As well, if there is a maximum “known” amount of liquidations that the market can absorb, that would be an interesting stat to see.

Thanks @GFXlabs - we value your feedback. To give a heads up, our updated Dashboard would look something like the attached. Please note that these are dummy numbers for the purposes of the mock.

Our analysis shows that it is safe to increase CFs as the expected insolvencies in Compound in a Black Thursday level event are currently minimal. Under these risk parameters, the Compound protocol remains very safe.

We agree with you that more clarity on VaR is needed. We will make a forum post dedicated to explaining VaR by January 28th. We intend to provide the community with more explanation on VaR in this post and look forward to discussing then.

@pauljlei and Gauntlet team – much of the confusion that is arising is due to lack of clarity on the terms used. As @GFXlabs has indicated in this post (and in the previous Risk Parameter Update of 2021-12-23) there should be a good explanation around VAR. Yes, there is textbook definition of VAR for anyone to look up, but what does that really mean in Compound context.

However, an explanation of VAR is not enough. As I indicated during the initial user study, there should be links explaining (and giving math definition where possible) every term used in the Dashboard, especially Market Statistics and Sim Statistics. While forum posts are useful, direct links within the Dashboard are far more helpful. Currently, the Dashboard is extremely minimal and barebones. So much can be done to make it intuitive and approachable for an average user.

Honestly, I hoped that Gauntlet would’ve made some progress after one quarter. However, I noted your mention that improvements are coming this month, so that’s a welcome news.

Thanks @RogerS - on our Dashboard we will better explain the terms and Gauntlet’s methodology. In addition to the VaR split out between insolvencies and liquidations, we are continuing to iterate the Dashboard to broaden its impact. We will keep the community updated on our Dashboard developments and look forward to more discussion and user studies.