Base
Simple Summary
A proposal to adjust 8 risk parameters:
| Risk Parameter | Current Value | Recommended Value |
|---|---|---|
| rETH Supply Cap | 1000 | 1200 |
| rETH Borrow Cap | 350 | 450 |
| rETH Reserve Factor | 30% | 15% |
| wstETH Reserve Factor | 30% | 15% |
| cbETH Reserve Factor | 30% | 15% |
| USDC Reserve Factor | 15% | 10% |
| WETH Reserve Factor | 25% | 15% |
| AERO Reserve Factor | 25% | 30% |
*Cap Recommendations will be implemented via Guardian
IR Parameters
A proposal to adjust IR parameters for AERO
| AERO IR Parameters | Current | Recommended |
|---|---|---|
| Base | 0 | 0 |
| Kink | 0.45 | 0.45 |
| Multiplier | 0.18 | 0.23 |
| Jump Multiplier | 3.96 | 4.1 |
Rationale
Risk Parameters
Gauntlet advises an increase in the supply and borrow caps for rETH, alongside a recommendation to decrease Reserve Factors for WETH, USDC and LSTs, including wstETH, cbETH, and rETH. Conversely, it is suggested to elevate the Reserve Factors for AERO to enhance capital efficiency and effectively manage risk.
Cap Recommendations
We recommend increasing both supply and borrow caps for rETH given increasing circulating supply on Base with current cap increases still falling below the 30% threshold against circulating supply to prevent concentration risk.
rETH Circulating Supply
- rETH - In accordance with Gauntlet’s methodology for managing parameters, we propose scaling up the supply caps (1000->1200) and borrow caps(350->450) for rETH. Of the top 10, 2 positions are borrowing recursively, 2 borrowing correlated assets and the rest are borrowing a mix of stables and non-stables.
Top 10 Suppliers of rETH
Base Circulating Tokens and Supply Cap
| Asset | Borrow Cap | Supply Cap | Borrow Cap Usage | Supply Cap Usage | DEX 25pct Slippage Token | DEX 25pct Slippage USD |
|---|---|---|---|---|---|---|
| AERO | 13,500,000 | 22,000,000 | 80.12% | 81.14% | 2,400,400 | $2,082,440.21 |
| DAI | 1,500,000 | 2,000,000 | 34.57% | 61.70% | 251,165 | $251,242.44 |
| WETH | 40,000 | 60,000 | 56.31% | 47.04% | 622 | $2,034,178.00 |
| cbETH | 3,200 | 8,000 | 12.50% | 56.36% | 582 | $2,048,511.73 |
| wstETH | 2,400 | 6,300 | 12.87% | 64.63% | 539 | $2,068,964.03 |
| USDC | 92,000,000 | 100,000,000 | 28.98% | 43.93% | 1,989,867 | $1,989,847.44 |
| rETH | 350 | 1,000 | 50.97% | 99.88% | 527 | $1,930,054.41 |
| USDbC | 200,000 | 250,000 | 63.27% | 68.35% | 2,676,464 | $2,676,437.32 |
Reserve Factor
Historically, Moonwell has effectively capitalized on the bull market conditions, leveraging limited competition on the Base chain and optimizing high reserve factors to bolster its reserves amidst elevated demand for leverage. However, the current market landscape has shifted. We’re now observing intensified competition across money markets on Base, coupled with a normalization of leverage demand. In response to these changing dynamics, we recommend a strategic adjustment of Moonwell’s reserve factors to maintain competitiveness while optimizing risk-adjusted returns. For USDC, WETH, and LSTs, we propose lowering the reserve factors to 10% for USDC and 15% for WETH/LSTs. This adjustment will reduce borrowing costs by an average of ~15bps. Conversely, for AERO, where Moonwell remains the dominant liquidity provider, we recommend increasing the reserve factor to 30% which will affect the supply rates by ~20bps.
IR Parameters
As we continue to monitor AERO positions, the utilization has consistently remained above kink despite previous hikes in interest rates. This suggests that the demand for AERO borrowing is higher than presumed. In light of this we suggest increasing the borrow rates to > 10% APRs for AERO to bring utilization to healthier levels.
AERO IR Parameters
Despite previous increases in borrow rates, AERO utilization continues to exceed the kink threshold, indicating significant demand for borrowing AERO. To rebalance this market and align utilization with healthier levels, Gauntlet recommends raising the borrow APR to 8.1%.
Recommended AERO IR Curve
Projected APRs for AERO
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 10.35 | 3.26 |
| 100 | 235.85 | 165 |
Current APRs for AERO
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 8.1 | 2.73 |
| 100 | 225.9 | 169.42 |
Gauntlet will monitor the utilization of AERO and consider additional actions if necessary.
Optimism
Simple Summary
General recommendations for Optimism market:
Caps
| Risk Parameter | Recommended Value |
|---|---|
| WETH Supply Cap | 4,000 |
| WETH Borrow Cap | 3,400 |
| USDC Supply Cap | 18,200,000 |
| USDC Borrow Cap | 17,000,000 |
| USDT Supply Cap | 22,600,000 |
| USDT Borrow Cap | 18,400,000 |
| DAI Supply Cap | 2,400,000 |
| DAI Borrow Cap | 2,000,000 |
| WBTC Supply Cap | 70 |
| WBTC Borrow Cap | 45 |
| wstETH Supply Cap | 1,850 |
| wstETH Borrow Cap | 850 |
| rETH Supply Cap | 800 |
| rETH Borrow Cap | 380 |
| cbETH Supply Cap | 30 |
| cbETH Borrow Cap | 0 |
| OP Supply Cap | 2,000,000 |
| OP Borrow Cap | 1,000,000 |
| VELO Supply Cap | 19,500,000 |
| VELO Borrow Cap | 9,000,000 |
LTs and RFs
| Risk Parameter | Recommended Value |
|---|---|
| WETH Collateral Factor | 81% |
| WETH Reserve Factor | 10% |
| USDC Collateral Factor | 83% |
| USDC Reserve Factor | 5% |
| USDT Collateral Factor | 83% |
| USDT Reserve Factor | 5% |
| DAI Collateral Factor | 83% |
| DAI Reserve Factor | 5% |
| WBTC Collateral Factor | 81% |
| WBTC Reserve Factor | 10% |
| wstETH Collateral Factor | 78% |
| wstETH Reserve Factor | 10% |
| rETH Collateral Factor | 78% |
| rETH Reserve Factor | 10% |
| cbETH Collateral Factor | 78% |
| cbETH Reserve Factor | 10% |
| OP Collateral Factor | 65% |
| OP Reserve Factor | 25% |
| VELO Collateral Factor | 65% |
| VELO Reserve Factor | 25% |
IRs
| IR Parameters | USDC | DAI | USDT | WETH | WBTC |
|---|---|---|---|---|---|
| Base | 0 | 0 | 0 | 0.02 | 0.02 |
| Kink | 0.8 | 0.8 | 0.8 | 0.8 | 0.6 |
| Multiplier | 0.075 | 0.075 | 0.075 | 0.055 | 0.065 |
| Jump Multiplier | 2.5 | 2.5 | 2.5 | 5 | 3 |
| IR Parameters | cbETH | wsETH | rETH | OP | VELO |
|---|---|---|---|---|---|
| Base | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 |
| Kink | 0.45 | 0.45 | 0.45 | 0.45 | 0.45 |
| Multiplier | 0.065 | 0.065 | 0.065 | 0.1 | 0.1 |
| Jump Multiplier | 3 | 3 | 3 | 3.15 | 3.15 |
Protocol Seize share
| Asset | USDC | USDT | DAI | WETH | WBTC | cbETH | wstETH | rETH | VELO | OP |
|---|---|---|---|---|---|---|---|---|---|---|
| Protocol Seize Share | 30% | 30% | 30% | 30% | 30% | 30% | 30% | 30% | 30% | 30% |
Rationale
Optimism metrics
The TVL in Optimism is hovering around ~$730M, with Velodrome, Uniswap and Beethoven making up the largest DEXs.
Among the above DEXs, the daily volume has averaged ~$89M YTD.
Risk Parameters
Cap Recommendations
WETH
The liquidity of WETH across decentralized exchanges (DEXs) on the Optimism is relatively limited. The accompanying table showcases the largest WETH pools by TVL, which collectively amounts to approximately $53 million. This liquidity level results in higher slippage for trade executions compared to other Layer 2 solutions. Despite these liquidity, considering WETH’s risk profile, we recommend setting the supply cap at 25% of its TVL. This implies a supply cap of 4,000 WETH. Additionally, to maintain operational flexibility, the borrow cap should be slightly above the kink point at full utilization, resulting in a borrow cap of 3,400 WETH.
| Dex Category | TVL (mil) | Link |
|---|---|---|
| velodrome-finance-v2 | 5.75 | Link |
| curve_optimism | 5.70 | Link |
| uniswap_v3_optimism | 5.68 | Link |
| uniswap_v3_optimism | 4.42 | Link |
| beethoven_x_optimism | 4.39 | Link |
| Others | 27.00 | - |
Total TVL: 52.94mil
USDC, USDT and DAI
Based on our methodology, we recommend setting the starting Supply cap for stablecoins as 10% of total circulating supply on-chain. Given the above, we recommend the Supply cap to be $18.2M USDC (~10%of supply) and the Borrow cap to be $17M USDC respectively (Few % above kink at 100% utilization).
For USDT, we follow the same framework as above. However, given significant holder concentration in the Binance cold wallet (78% of circulating supply), we recommend discounting these holdings to better evaluate USDT’s free float on-chain.
The supply cap would translate to 10% of circulating supply less Binance cold wallet holdings
Supply Cap = (Circulating Supply - Binance Cold wallet holdings)* 0.2
The Supply cap would then be $22.6M with borrow cap slightly above kink at $18.4M.
Given the above circulating supply, we recommend setting Supply and Borrow caps to 2.4M DAI and 2M DAI respectively.
WBTC
Similar to WETH, WBTC exhibits higher slippage due to fragmented liquidity across various DEX pools. We therefore recommend to use the same framework i.e using 25% of WBTC DEX TVL to initialize a starting supply cap. We therefore recommend a Supply cap of 70 and a Borrow cap of 45. Gauntlet will monitor the caps and make any updates accordingly via cap guardian.
| Dex Category | TVL (mil) | Link |
|---|---|---|
| Curve Optimism | 5.70 | link |
| Uniswap V3 Optimism | 2.98 | link |
| Uniswap V3 Optimism | 2.95 | link |
| Uniswap V3 Optimism | 2.54 | link |
| Uniswap V3 Optimism | 1.24 | link |
| Others | 3.77 | - |
Total TVL: 19.18 million
LSTs - wstETH/rETH/cbETH
For LSTs, we recommend setting the supply caps to 35% of DEX TVL for respective LST pairs. The percentage is higher when compared to WETH and WBTC due to the pervasive looping strategies employed using LST collaterals.
- wstETH - We recommend a Supply cap of 1850 wstETH and Borrow cap of 850 wstETH.
- rETH - We recommend a Supply cap of 800 rETH and Borrow cap of 380 rETH.
- cbETH - Due to low liquidity conditions, we don’t recommend activating the cbETH market yet. However, if the community decides to, we recommend a supply only market with a supply cap of 30 cbETH.
wstETH DEX TVL
| Dex Category | TVL (mil) | Link |
|---|---|---|
| Velodrome Finance Slipstream | 5.11 | link |
| Beethoven X Optimism | 3.81 | link |
| Beethoven X Optimism | 3.39 | link |
| Velodrome Finance V2 | 2.59 | link |
| Velodrome Finance V2 | 0.90 | link |
| Others | 5.29 | - |
Total TVL: 21.09 million
rETH DEX TVL
| Dex Category | TVL (mil) | Link |
|---|---|---|
| beethoven_x_optimism | 4.38 | link |
| beethoven_x_optimism | 3.81 | link |
| beethoven_x_optimism | 0.21 | link |
| velodrome | 0.20 | link |
| Others | 0.00 | - |
Total TVL: 8.60 million
OP and VELO
For OP and VELO tokens, we recommend setting a supply cap that would incur a slippage of ~25% i.e 2M OP supply cap and 1M OP Borrow cap, and 19.5M VELO Supply cap and 9M VELO Borrow cap.
Collateral Factor (CF)
We suggest standardizing the CF values to be consistent with those used on Base. Specifically for WBTC, a lower LT is advisable compared to WETH. This is due to the prevalent practice of using Bitcoin as stable collateral for borrowing, unlike WETH, which often involves recursive strategies. We recommend setting the CF for cbETH to 0%, but if the community decides to have this market we recommend aligning the CF values to those on Base.
Reserve Factors
To optimize for growth and provide competitive APRs to users we recommend setting the Reserve Factors to a 5% discount to the new recommended Base reserve factors for respective assets.
IR Parameters
WETH IR
WBTC IR Curve
Stable IR Curves (USDC, USDT and DAI)
LSTs (wstETH, rETH)
Long-tail assets (OP and VELO)
Protocol Seize Share
In Moonwell, during liquidations, the collateral is sold to liquidators at a 7% discount. Additionally, the protocol reserves receive an extra 3%, termed the “protocol seize share.” Altogether, this constitutes a total “liquidation penalty” of 10% on the liquidated amount. We recommend aligning the protocol seize share mirroring assets on Base.
Notes
As the protocol and liquidity evolves and more data becomes available, all the above parameters may be adjusted accordingly. By incorporating protocol data, user positions and liquidity data in our analysis, we can provide comprehensive risk parameter recommendations.
Moonbeam
Simple Summary
A proposal to adjust 3 total risk parameters:
| Parameter | Current Value | Recommended Value |
|---|---|---|
| USDC.wh Borrow Cap | 1,800,000 | 1,200,000 |
| WBTC.wh Borrow Cap | 2.5 | 1 |
| ETH.wh Borrow Cap | 100 | 50 |
| FRAX Borrow Cap | 500,000 | 150,000 |
| FRAX Reserve Factor | 15% | 30% |
Rationale
Risk Parameters
Cap Recommendations
The current borrows for USDC.wh, WETH.wh, WBTC.wh and FRAX make up less than 50% of the total borrow caps. To tackle under-utilization, we recommend reducing the caps for USDC.wh (1,800,000 → 1,200,000), WETH.wh, WBTC.wh and FRAX
Reserve Factor (RF)
Compared to our previous stance where we recommended not increasing the reserve factors for FRAX, we now advise raising the reserve factor to 30%, aligning it with the reserve factor recommendations for stablecoins.
Moonriver
Simple Summary
A proposal to make an IR curve adjustments for FRAX
| FRAX IR Parameters | Current | Recommended |
|---|---|---|
| BASE | 0 | 0 |
| Kink | 0.8 | 0.8 |
| Multiplier | 0.08 | 0.04 |
| Jump Multiplier | 7 | 3.5 |
Rationale
IR Parameters
As previously highlighted, FRAX has been experiencing an accumulation of bad debt that continues to accrue interest. To mitigate this issue, we recommend lowering the borrow rates to curb the growth of this bad debt.
Projected APRs for FRAX
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 3.2 | 1.6 |
| 100 | 73.2 | 47.58 |
Current APRs for FRAX
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 6.4 | 3.32 |
| 100 | 146.4 | 95.15 |
Risk Dashboard
The community should use Gauntlet’s Moonwell Base Risk Dashboard to better understand the updated parameter suggestions and general market risk in Moonwell BASE.
Quick Links
Please click below to learn about our methodologies:
Gauntlet Parameter Recommendation MethodologyGauntlet Model Methodology
By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.
Methodology
This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.
Gauntlet’s parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. 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 asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet’s simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. As such, the input metrics we show below can help understand why some of the param recs have been made but should not be taken as the only reason for recommendation. To learn more about our methodologies, please see the Helpful Links section at the bottom.
