ZRX,BAT, and WBTC Parameter Update

Yes, that’s quite what i mean when i said the model should account for onchain liquidity.

Your example with Uniswap follow that, but intentionally or not, you selected a place with lowest WBTC liquidity on chain for your example.

Let’s take a look at sushi:

But considering you want to deal with millions i seriously doubt anybody would use just a single pool of liquidity, so here is the same trade on 1inch, routed through several pools:

Of course, telling that on-chain liquidity is only thing we should care was never my intention. I very much encourage using as much data, as available. The only thing i want to say, it shouldn’t be ignored either, as it is not negligble anymore. And volume at DEX is not good enough as ONLY metric, as they hold much more liquidity, than their daily volume is. Especially if we talk about suchi, 1inch pools, where liquididy is incentivised. Daily volume is a small fraction of their liquidity, most of it just sit there without trading. (untill price spike happen)

To make my point really short and simple. If we say:

a) ETH have no problem with liquidations (as shown by your model)
b) WBTC have no problems in converting to ETH (as delivered from onchain liquidity)

Then if A and B is true, than

c) WBTC should have little problems with liquidations also.

Of course, there is additional step and transactional expenses, so it might not be as good as ETH, but certanly not 10 or 20 times worse in liquidity.

That’s not said to say that decreasing CF for WBTC is bad idea. It might be not. I believe after so many X in price some tokens done, lowering risk might be appropriate, even if it’s somewhat enforced on users. I just want you to maybe take a look at your model from outside perspective. Maybe DEXes, should not be just a single daily volume metric, and dex liquidity is not exactly quite same as cex orderbook either.

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@jmo Is this the correct takeaway from your simulation results?

If we do nothing, and the markets are only as volatile than they have been in the last twelve months, then:

  • We should expect an event in which about 7% of the 2 billion dollars of WETH in compound is liquidated.
  • Since a portion of profit for liquidators can come from the compound pool itself, this could negatively affect the solvency of one or more compound pools?
  • This liquidation event would have a very large, rapid, and self-reenforcing negative effect on the price of BTC worldwide.

Is this in the ballpark of what you were intending to convey?


Given “black thursday” levels of volatility, we expect the WBTC market on average to become underwater by 7%, much more than that would be liquidated. We’ll probably post some stats on the current liquidations once we get a chance as well.


I support raising the CF for ZRX & BAT. I do not support decreasing the CF for WBTC.

WBTC is the most liquid coin on the Ethereum ecosystem that is not a stablecoin or ETH, and the CF should reflect that. Like one of @Sirokko’s points, I think Gauntlet’s models are not fairly taking into account the onchain liquidity available.

The top 10 cWBTC holders account for 60% of cWBTC. The top 100 cWBTC holders account for 91% of cWBTC. The top 10 users are highly incentivized to keep their wallets far away from liquidation, and many are high-sophisticated users. If I had more free time, I would love to analyze each of these user’s accounts because their activity and usage are likely valuable in our decision-making.

I also think the CF should only move in one direction except for emergencies/significant changes to the underlying asset. It will be hard to build a community and user base if governance changes CFs up and down often.

Perhaps we should advertise/support DeFi Saver and other services that protect users’ loans and better provide alert systems.


I don’t think that not reaching quorum should be taken lightly. It is unlikely that many voters did not see the proposal/forgot to vote.

Additionally, I don’t believe that it is ideal to bundle the previous changes along with a change to the collateral factor for WBTC. Just decreasing the CF for WBTC is quite controversial and warrants its own proposal in my opinion.

We should acknowledge that Gaunlet specializes in simulation and their models are likely very complex—far more complex than any anecdotal evidence which is generally offered. I don’t think it fair to say that based on limited research, their models are inaccurate. We should strive to generate parameters based on data attained from stress simulations and algorithmic optimization rather than finger in the air.

Collateral factors do not affect risk of liquidation to the user whatsoever. If there is concern that mass liquidation could cause a system wide shortfall, then the collateral factor is definitely too high. Relying on borrowers to payback in time takes away from the trustlessness of the system.


I love the work that Gauntlet is doing and acknowledge they are highly skilled. Their simulations are certainly helpful for monitoring the risks the protocol has. That being said, I have read their risk reports, medium articles and discussed with them their methodology. In my opinion, as a long-time participant in Compound and generally DeFi, their methodology could better account for the liquidity available onchain. Currently, they focus on traded volume as the best indication for liquidity. Before Uniswap/Sushiswap and other AMMs had significant liquidity, I would have used the same trading volume stat they are using to measure liquidity; however, a significant amount of onchain liquidity has built up in recent months, and purely measuring trading volume is no longer sufficient.


To stay focused on proposal itself, i think it’s worth to mention that despite of discussion going towards Gauntlet model, that isn’t main point of this discussion. I believe concerns, raised by Gauntlet certanly is enough as a reason to discuss lowering CF for WBTC, even if I might not share the scale of that concerns.

I certanly hope that last couple days of market volatility allowed to gather more data, which might reinforce either position.

Than surely WBTC liquidity isn’t quite equal to ETH liquidity, and in light of concerns from the model, governance can and should consider decreasing CF.

The scale of proposed changes should be conservative enough to not put users immediately into liquidation, regardless of “they should know better” arguments.

So, if putting CF from 75 to 60 puts users into liquidation, than change should be more conservative, to prevent it as much, as possible. If 65 doesn’t improve situation either, than we should go with 75 to 70. Which is probably most conservative approach possible. If decreasing CF by mere 5% cause liquidations, i don’t think governance could do anything about that.

Considering market volatility in last couple days, i’d say executing most careful and conservative approach in lowering CF might be appropriate. And certanly likely to get more support among voters rather than big 15% cut. Especially if we remember that increase to 75% was introduced just couple weeks ago, and even if we exclude Gauntlet voting “for” by mistake, still gathered quite a significant support.

And yet, in current market conditions, having somewhat more conservative CF for WBTC than 75% might be appropriate.


I understand Gauntlet is a company and can’t give up the “secret sauce” to their analytical methods. But I’d love to see more specifics on model inputs (+ maybe outputs). Eg for the liquidity and volatility data, which specific sources are used and what is the method of computation for aggregate final numbers. Or any probability distributions of expected losses (net insolvent) so people can understand the nature of the risk to the protocol (eg thin or fat tail).

It’s tough for me to get fully behind the proposal when I can’t inspect the underlying model assumptions.


Hey - we’re looking into the recent liquidations but in the spirit of sharing data, we published some quick numbers to Google Data Studio and made the link public for people who are interested:

We saw some liquidations, but just as a reminder, our stress tests are focused on worst-case volatility, like we saw last March. It was a tumultuous couple of days, but nowhere near as bad as we saw last March. I grabbed this quick chart from BitMex to help visualize:

Definitely let me know if you see anything interesting in the liquidations data!



I respect and appreciate your suggestions, which are always backed up by numbers.

This proposal is a big part of Liquidation
I think we should take all possible measures to prevent users from liquidating, including publicizing it on social networking sites and displaying it on the website!


We’re going to move forward with a proposal here. We realize that lowering collateralFactors can cause liquidations and should not be done lightly, however the risk posed to the protocol due to WBTC insolvency is too great not to take action. We’ve re-run the simulations with updated results:

These results show that risk in the protocol continues to increase as volatility continues to stay high and WBTC liquidity actually appears lower than it was last week - our last stress tests assumed 250mm daily volume for WBTC and these most recent results assume ~120mm:

We’ve included all of the liquidity assumptions above as @monet-supply requested. We also have updated our suggest parameters to avoid liquidations, as more people have been taking advantage of the higher collateralFactor.

Collateral Current collateralFactor Recommended collateralFactor
ZRX .60 .65
BAT .60 .65
WBTC .75 .65

By lowering the CF for WBTC to .65 instead of all the way to .6, we can limit the immediate effect on borrowers. Some quick numbers here on liquidations for different values of WBTC:

70: [‘0xfa8c56fd100c7c55ef39e0af075c618b59714f91’, ‘0x1702f2d0df7c99011a690461c34e51bd81cbab48’, ‘0xd762205476ea5649c689a8a703488572c8b3007d’]
Total collateral: 4,729,790.58 USD

65: [‘0x15200b08325069ea4edd0cec4baf75853b200b5c’, ‘0x3f9a8d828ebc441eb1ad6942118586f331454743’, ‘0x51a33a5bba82f8ebd0fe2192a25ca2e60b9dc32f’, ‘0x59149937397a77368a3a37ee359d1ff61d9df011’, ‘0x61f5d50cdf7813190d125c0e32b195c6fc0f6ffd’, ‘0x8877889ff4a0fa0415d7572cbc871ede200e2f78’, ‘0x8fd1fa7ba628a0a170ae53139552dbd1aec9c22b’, ‘0xd749940ac368792ffb33745653cb1e7b7d0b7a17’, ‘0xddef74bd1ef4915546ee9371928123475eb2a354’, ‘0xf14662b6b7edfebe645d783afef03a6ce615dfe0’]
Total collateral: 9,821,799.23 USD

60: [‘0x071341196d71b14f04b84463f9b9b56f3b5ed333’, ‘0x2898e036dcaa7a94ea96761193cbe6c54d587bc5’, ‘0x29664e652ca8f8f2d95de3b33cc0ae7247fc0aa9’, ‘0x39f230c044c2a9a67ae95caac639e67145e533a7’, ‘0x3d624933c49df28059d07f950254abb92aa4dc8b’, ‘0x44428c4cfbe9e319ca00a5d955a417f4b6e080e9’, ‘0x444e01dcb3a1ec1b1aa1344505ed7c8690d53281’, ‘0x505008a654c321d93b7d2ebdf6389aaa876b16ab’, ‘0x5140c2e3be04d48e9b7c5fdf016bbea6a88b2b65’, ‘0x57d1e246d2e32f6f9d10ec55fc41e8b2e2988308’, ‘0x59f075a6a9a11b4437d33c0cddb6f5226a4bea87’, ‘0x63dcafd6b547e7cfb2e67386db3d06d67aa71c49’, ‘0x78b58e4197c04d320a33c582ecc3e7e885f26a58’, ‘0x7cd982fdbeaa7a3d13de73d50e2030fde2aba3e1’, ‘0x815afec2721dc50ca75c633906147a46c439e52e’, ‘0x8626e72944f62aad5d85e60b8d34471f7d5ef980’, ‘0x8b349d17392f266d87d518bf71426b2921cc35ee’, ‘0xb145ed57fdf5b6f4fc7d8ec9a2f03026a218f000’, ‘0xbececc0d46b3f06b0096c6b2bbc6e429fe7bd911’, ‘0xc8ebbaaad5ff2e5683f8313fd4d056b7ff738bed’, ‘0xcc60721776b70023ae3196b3a9994e911aa66854’, ‘0xd28bfaea8c886ff6424141278a928f3cde2741f1’, ‘0xe24286adfc053f76888aa51d9a94f6c1519b4cba’, ‘0xfd4bb054392dcd5acb07be4d9e287c7684c87606’]
Total collateral: 33,722,887.95 USD

Obviously, we could lower the parameter in smaller increments, but as proposals take 5 days, this is too slow as the current risk level is so high.


Proposal is live: CP039!


Just a quick question. Since I don’t see adresses duplicate at 65 and 70 CF, i assume assets for liquidation at 65 CF do not include assets going for liquidation at 70 CF? So basically if CF is set to 65, then we going to put 4 729 790 + 9 821 799 for liquidation?

I still believe decreasing CF in steps is more responsible action: lowering it to 70 first with second followup proposal lowering it to 65 going next would be a better approach.

If timing is critical, than second proposal could be put to vote before first one finish, giving it 24 to 48 hours delay after first proposal put, to give time for borrowers to adjust their positions after execution of first part to avoid being put for liquidations.

As for everything in general i think it should already be put to vote, as not much remained to discuss here really. I think all main arguments are already being presented. I still not really convinced about liquidity assumptions your model gives. As i look at that massive onchain liquidity for wbtc-eth (Uni 355M + Sushi 729M + 1inch 535M= over 1.5B) and it’s hard to believe that even 100M trading volume = low liquidity. Besides for last 24 hours only uni and sushi created 37M+38M = 75M of WBTC trading volume, so 125M doesn’t look accurate at all. Could all CEX combined generate less trading volume for WBTC than only 2 DEXes alone.

Yet, i believe, lowering CF is still good idea, as WBTC market is huge on Compound, and after all the bull run it would be smart to stay on safe side, and decrease amount of risk users could take on WBTC. So i’m for your proposal, just not quite convinced by the arguments of low liqudity.

However, I’d say better be safe than sorry, so if your model say that we should derisk WBTC market, than we should. Maybe your model is somewhat right, who knows.


I’m very happy to see this proposal go live. I think switch to 65% for this was a good compromise on reducing the impact of this change.

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Can you share what exchange/markets you are using to get the ~120mm daily volume?


The only market with any real volume not included is Curve , which accounts for 10-30mm in volume. So best case, the current collateral would blow through the collective order book 4 times instead of 5 times, which is still, very very bad

Looks like it is missing the below:

  • 1inch

  • Curve

  • Bancor

  • Balancer

  • Dodo

  • FTX

  • Bitgo mint/burn

  • Coinlist

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@getty How much liquidity do you think there is? We ran the earlier sims with an assumption of 258mm volume and the results were still clear - WBTC poses a huge risk to the protocol. We can talk about exchanges all day but the question is - why do you think the protocol is safe? Sure, we can add more features to our model, but shouldn’t the protocol move forward with the best information it has? The question I have for people who oppose this is not “what features should we add?” but “how could you possibly think this is safe?”

Fair question

Stepping back for everyone reading this thread, I want to explain the scenario where the protocol loses money. If any loan goes to liquidation and the collateral value (minus the liquidation incentive 8%) is below the value borrowed, the protocol will take on losses. An asset with 75% CF has ~17% of wiggle room. Although, once a loan goes to liquidation, it will likely be eating into a portion of the 17% cushion immediately.

For the protocol to lose money someone needs to have a loan reach the liquidation point, for there we either need a liquidator not to liquidate or we need the market to gap ~17%, and then the protocol starts taking on water. I am not going to say this is impossible, but it is very unlikely. Liquidators are highly incentivized to liquidate loans, and users are incentivized not to get liquidated. The primary concern that users/protocol can’t control is if the market does, in fact, gap ~17% in 10-30 minutes.

Having worked in crypto full-time for the last +3 years as a trader, I have seen significant volatility and understand the danger of cascading liquidations. I have also seen the market rapidly mature and develop liquidity.

Why do I think it is safe:

  • The available liquidity for WBTC onchain and offchain is unmatched by any coin on Compound other than ETH & the stables.

  • I have researched the primary WBTC accounts, and they are all far away from liquidation, and I know many of them will go to great lengths not to be liquidated.

  • I have minted and burned significant amounts of WBTC and am familiar with the significant OTC players.

  • I have researched and participated in many of the WBTC onchain and offchain exchange/pools to know what is and isn’t possible.

I deal in reality and function and less in theory. With the state of WBTC liquidity and the state of accounts using WBTC on Compound, I think it is safe. Are we taking a risk, yes. It is a risk worth taking, yes.

If I had more time I would love to write a more detailed post, maybe next time this goes to governance I’ll try to write something more formal.

My primary concern is that the oracle price does gap, which causes underwater loans and protocol debt. That is why I am pushing for oracle improvement because the current Coinbase and poster situation is not acceptable.

I’ll go as far as to say that hoping users top up collateral during a downturn is not a great way for the protocol to mitigate risk.

These anecdotes are helpful in understanding your experience, but to be clear, we at no time intended to question anyone’s expertise as a trader. What we are trying to do is build the best model possible, over time, and get community feedback while we do so. I think one piece of feedback that is clear is that we should include liquidity from Curve, and we’ll continue to look into that.

Now our model focuses on liquidation cascades, which are a real concern given the quantity of WBTC on Compound. While you present interesting feedback on our model, it’s not clear to me how you have taken into consideration these cascades or any of the other things we included, like gas price spikes, price correlations between borrowed and lent assets, etc. We know our model is no perfect - not model is - but it feels the counter argument is to throw the baby away with the bathwater in favor of finger-in-the-air reasoning.