Risk Parameter Recommendations and Conditions for Re-enabling Borrowing on Base (9/15/26)
Anthias Labs proposes the following parameter changes. For more information on current parameters, please refer to our monitoring dashboard.
Borrowing restrictions and conditions for reopening
Why borrowing remains restricted
The August 27 MAMO incident left substantial bad debt in the assets borrowed against MAMO collateral, including USDC, WETH, cbBTC and wstETH (Incident post-mortem). The incident also damaged user confidence and prompted suppliers to withdraw. As available cash was depleted, remaining suppliers faced difficulty exiting. That is the bank-run dynamic we need to resolve: people understandably want access to their funds, but the markets cannot meet all those withdrawals immediately.
All markets on base have borrow caps set to one wei, effectively preventing new borrowing. Currently, USDC and EURC had zero available liquidity. The restrictions protect liquidity that remains elsewhere in the deployment.
Why not leave interest rates extremely high until borrowers repay?
Higher borrowing costs can encourage solvent borrowers to repay, returning cash to the market. But interest also continues to accumulate on bad debt. An insolvent position cannot be made whole simply by charging it more interest. Extremely high rates can increase the amount requiring remediation without producing corresponding repayments. That is the tradeoff behind moderating the interest-rate models.
We believe borrow APYs around 20% in the affected markets offer a reasonable middle ground to evaluate: meaningful repayment pressure while limiting how quickly unrecoverable balances grow. After IRM updates apart of MIP-X66, borrow APYs are approximately 17.4% for USDC and 19.3% for EURC. These rates remain variable.
If the MAMO risk is contained, why not reopen the other markets?
Restricting MAMO does not repair the debt or withdrawal pressure already present elsewhere. There is a second risk: users unable to withdraw from one market could borrow assets from another to access liquidity.
For example, a supplier with $10,000 of USDC collateral and no existing debt could, at an 88% collateral factor, theoretically borrow up to $8,800 worth of WETH if borrowing were reopened and sufficient WETH were available. This would leave an outstanding loan against the USDC.
If ETH then rises in price, the dollar value of the WETH debt increases and the position can become liquidatable. A liquidator repays WETH and receives mUSDC receipt tokens. Those tokens can still be seized when USDC liquidity is unavailable, but redeeming them into USDC requires underlying cash in the contract.
Our concern is that liquidators may be unwilling or unable to fund that repayment while holding collateral they cannot promptly redeem. Delayed liquidation, further price moves and accumulating interest could then create additional bad debt in the borrowed asset’s market. Reopening would allow withdrawal pressure in USDC to consume liquidity in other markets and expose their suppliers to further losses.
What would we need to see before supporting reopening?
- Sustained liquidity in USDC and other connected, stressed markets. Withdrawals should function consistently, with enough cash to absorb further exits and the additional borrowing proposed. A brief positive balance after a repayment is not sufficient evidence of recovery.
- Evidence that liquidations will work under stress. The assessment should cover available collateral-market liquidity as well as executable swap liquidity.
The practical answer to “when?” is when those conditions can be demonstrated. Restoring borrowing is the goal, but reopening should help the markets recover without allowing the existing liquidity problem to spread further.
Base
Summary
Risk Parameters
| Parameters | Current Value | Recommended Value |
|---|---|---|
| WELL Collateral Factor | 65% | 55% |
| MORPHO Collateral Factor | 65% | 60% |
| AERO Collateral Factor | 65% | 60% |
Rationale
WELL
We recommend decreasing the WELL collateral factor from 65% to 55% as part of a gradual reduction in WELL collateral exposure.
Secondary-market liquidity is not deep enough for us to rely on orderly liquidations under stress. At the current snapshot, selling 15,000,000 WELL, worth approximately $29,167, into USDC returned 27,552.37 USDC at 5.55% price impact. Reaching this impact at a relatively small sale size raises concerns about recovery proceeds if multiple positions need to be liquidated together. WELL → USDC quote.
Thin liquidity also creates potential exposure to a long attack: an attacker could push the token’s market price upward and, if that inflated price feeds into its collateral valuation, borrow more than the collateral could recover when sold.
We have therefore taken a risk-off stance by setting WELL’s supply and borrow caps to 1 wei, effectively preventing additional supply and borrowing. These restrictions limit new activity, but existing WELL positions retain collateral borrowing power. We propose gradually winding down the collateral factor, with this initial reduction to 55% balancing risk reduction against the impact on existing borrowers.
Borrower impact
At the reviewed prices and balances, reducing WELL’s collateral factor from 65% to 55% would make two accounts newly eligible for liquidation, with $34.19 in combined debt.
| Account | Outstanding debt | Health factor: 65% → 55% |
|---|---|---|
| 0x525c49bf83ce3a1aaf425ac1a463537db68c8bd7 | $20.81 — 4,792.46 WELL + 11.56 USDC | 1.0641 → 0.9004 |
| 0x89b552ca032601dc60c0c2e67278b6f4bf18d069 | $13.38 — 13.38 USDC | 1.1143 → 0.9428 |
A health factor below 1 permits liquidation.
MORPHO and AERO
We recommend decreasing the collateral factors for both MORPHO and AERO from 65% to 60%. This would require more collateral relative to borrowing, providing additional protection against sharp price declines. At the reviewed snapshot, the MORPHO change introduces no new liquidation eligibility; the AERO change newly affects one account with $150.82 of debt.
Over the 90-day period from June 16 to September 14, 2026, we measured:
| Asset | Latest 30-day annualized volatility | 90-day annualized volatility | Worst 1h decline | Worst 4h decline | Worst 24h decline | Maximum daily-sampled drawdown |
|---|---|---|---|---|---|---|
| MORPHO | 110.0% | 83.3% | 6.45% | 7.84% | 11.32% | 25.44% |
| AERO | 103.1% | 93.0% | 7.61% | 11.21% | 16.38% | 31.72% |
Both assets experienced substantial downside moves over short periods. These declines can erode the collateral cushion when the borrowed asset is not correlated alongside the collateral.
Annualized volatility measures the variability of returns, including upward moves; the observed declines show the downside risk directly. The maximum drawdown captures a peak-to-trough decline that may span several weeks. These historical observations support a more conservative collateral factor, without establishing 60% as an optimal level. We favor this measured first step given the limited immediate borrower impact.
MORPHO also faces a redemption constraint: the lending market currently holds only 34.55 MORPHO, approximately $74.05, in available cash. A liquidator receiving mMORPHO needs underlying market cash to redeem those receipt tokens before selling MORPHO.
Borrower impact
- MORPHO: reducing the factor to 60% introduces no newly liquidatable accounts at the snapshot.
- AERO: reducing the factor to 60% newly affects the account below. This borrower supplies and borrows AERO, so the change in liquidation eligibility comes from the lower collateral factor itself.
| User address | Collateral | Borrows | Health factor: current → proposed | Repayment to HF 1.05 (USD equivalent) |
|---|---|---|---|---|
| 0xedeb3b99964f0fa55b63fe9f6db2f20f02e52265 | 451.82 AERO ($248.99) | 273.68 AERO ($150.82 total) | 1.0731 → 0.9905 | $8.55 |
A health factor below 1 permits liquidation.
OP Mainnet
Summary
Risk Parameters
| Parameters | Current Value | Recommended Value |
|---|---|---|
| VELO Collateral Factor | 62% | 60% |
Rationale
VELO
We recommend decreasing the VELO collateral factor on OP Mainnet from 62% to 60% as an initial step toward reducing collateral exposure.
Limited secondary-market liquidity supports a conservative approach to VELO’s borrowing power. At the current snapshot, selling 5,000,000 VELO, worth approximately $119,387, into USDC returned 114,304.48 USDC at 4.27% price impact. Other available routes returned approximately 106,000 USDC for the same sale, demonstrating how recovery proceeds can depend on route availability. VELO → USDC quote.
If multiple positions require liquidation together, the resulting sales could push VELO’s price lower and reduce the proceeds available to repay debt. We therefore favor gradually reducing the collateral factor, beginning with a move to 60%. This limits borrowing power while giving existing borrowers time to adjust before further reductions.
Borrower impact
At the reviewed prices and balances, reducing VELO’s collateral factor from 62% to 60% would make one account newly eligible for liquidation, with $2,394.80 of debt.
| Account | Outstanding debt | Health factor: 62% → 60% |
|---|---|---|
| 0xcb6586874cc04b01cc4fdb777de502cea7b3d6c1 | $2,394.80 — 29,950.48 VELO + 16,923.03 OP | 1.0008 → 0.9912 |
A health factor below 1 permits liquidation. This borrower supplies both VELO and OP and is already close to the liquidation threshold.
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Anthias Labs has not been compensated by any third party for any statements made. All opinions and suggestions provided are based solely on our independent analysis and are not influenced by external entities.