Risk Parameter Updates 2022-03-29

Simple Summary

A proposal to adjust two (2) parameters for two (2) Compound assets.


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 ninth of 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 recently 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. Our 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 outputs related to our simulations.

Symbol Collateral Locked Volatility ADV Collateral Usage Usage/ADV Weighted Avg Collat Ratio
YFI $1.5M 91% $23.0M $0.24M 1.1% 3.67
SUSHI $0.6M 94% $65.5M $0.10M 0.2% 2.72

Top YFI non-recursive supplies and collateralization ratios:

Top SUSHI non-recursive supplies and collateralization ratios:


Our recent market downturn report showed that many collaterals are resilient to insolvencies, as our simulation models have predicted. We will continue to adjust risk parameters to drive increases in capital efficiency while maintaining protocol risk at safe levels. Parameter recommendations are ordered by descending cToken collateral locked.

Parameter Current Value Recommended Value
YFI Collateral Factor 65% 70%
SUSHI Collateral Factor 65% 70%

Note that we are proposing to continue incrementally increasing CFs for both YFI and SUSHI, which have low collateral locked and our simulations show low likelihood of insolvency. SUSHI’s CF was increased in our most recent parameter recommendations, executed on 3/21, and YFI’s CF was increased in our previous parameter recommendations, executed on 2/28.


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

When making recommendations, Gauntlet takes into account the entire distribution of insolvencies and liquidations from our simulations, and weighs them against increases in borrows. The below metrics give the community insight into some of the insolvency and liquidation tail risks the protocol could face, as well as Capital Efficiency improvements the protocol stands to gain. For more detailed simulation metrics, click the collateral-specific pages linked in the Collateral Risk section.

Value at Risk represents the 95th percentile insolvency value that occurs from simulations we run over a range of volatilities to approximate a tail event.

Liquidations at Risk represents the 95th percentile liquidation volume that occurs from simulations we run over a range of volatilities to approximate a tail event.

Even though these changes result in less than 1 bp of increased Borrow Usage given the current TVLs, they will improve long-term capital efficiency as the protocol grows and more users supply YFI and SUSHI.

Next Steps

While Gauntlet expects to initiate a governance proposal for this set of parameter recommendations on Sunday 4/3 (voting to begin 2 days later), we will cancel the vote should changes in our daily simulations dictate it necessary.

Should 2 risk parameters across 2 assets be updated?
  • Yae
  • Abstain
  • Nay

0 voters

YFI only takes 0.0142% of Compound Total Deposit
Sushi only takes 0.00648% of Compound Total Deposit

Putting the effort into optimizing the utilization of these assets is minimal to compound, please stop making such a futile proposal.

Even if the capital utilization rate of YFI and Sushi were increased by 200%, its capital utilization rate would still be less than increasing that of ETH or USDC by 1%.

"The protocol swap fees have never really been algorithmically controlled but rather changes have been made with some sort of “unknown” methodology "

The Balancer DAO has submitted a proposal that aims to terminate its contract with Gauntlet

@ClairvoyantLabs - we hear your thoughts around these specific assets. Gauntlet’s platform treats all assets without bias when considering changes to the parameters and our simulations show an opportunity to increase capital efficiency for these assets without adding risk. It is up to the community to decide whether these assets belong in Compound or not. We agree that the governance process is heavy handed and it would be better to have some mechanism to fast track these kinds of parameter changes to production rather than going through the entire governance process for every risk parameter update.

With regards to Balancer - Gauntlet decided to sunset its Fee Optimization Product, which we were delivering to Balancer. This was a decision we don’t take lightly, especially because we’re big supporters of the Balancer protocol, and have really enjoyed working together over the past year. However, we believe that managing incentives is much more impactful than setting fees given that incentives make up a larger percentage of LP earnings. So, we are focusing our product around Incentive Optimization for our AMM clients instead of setting fees as a standalone product.

1 Like

Any changes will create opportunities, There’s no denying the fact that the impact of these changes will be minimal for Compound.

Also you didn’t respond to the five reasons listed by Balancer DAO, which I think are all real.