[Gauntlet] - Base/Optimism/Moonbeam/Moonriver Monthly Recommendations - 2025-01-15

Base

Simple Summary

A proposal to adjust 3 risk parameters:

Risk Parameter Current Value Recommended Value
wrsETH Supply Cap 1,075 1,300
rETH Supply Cap 1,200 1,320
DAI Reserve Factor 75% 100%

*Cap Recommendations will be implemented via Guardian

IR Parameters

A proposal to adjust IR parameters for USDC, and cbBTC:

USDC IR Parameters Current Recommended
Base 0 0
Kink 0.9 0.9
Multiplier 0.061 0.067
Jump Multiplier 9 9
cbBTC IR Parameters Current Recommended
Base 0 0
Kink 0.35 0.35
Multiplier 0.045 0.07
Jump Multiplier 2 2

Rationale

Risk Parameters

The proposal outlines a series of parameter adjustments aimed at recalibrating risk parameters within the protocol’s assets. On the risk side, Gauntlet recommends an increase in supply caps for wrsETH and rETH based on market conditions discussed below.

On the yield curve side, the interest rate parameters for USDC, and cbBTC are re-caliberated. These modifications aim to better align marginal borrowing costs with target utilization rates and aim to optimize capital efficiency.

Cap Recommendations

  • wrsETH - Gauntlet recommends increasing the supply caps for wrsETH from 1,075 → 1,300. This is based on the current largest suppliers of wrsETH and prevailing market liquidity. The largest supplier has put up close to ~$1.4M worth of wrsETH as collateral with stablecoin borrows. The rest of the top 10 positions are supplying wrsETH with either stablecoin or WETH borrows.

    Given a Collateral Factor of 74%, there is ample buffer to absorb the top 3 positions in the event of liquidation without incurring substantial slippage relative to the buffer.

  • rETH - Gauntlet recommends increasing the supply caps for rETH from (1,200 → 1,320). The largest suppliers has collateralized their position with close $500k of rETH along with other WETH correlated assets. The rest of the top 10 positions are supplying rETH with either stablecoin or WETH borrows.


    The DEX TVL for rETH has continued to increase from $4.7M to currently $5.15M. The above cap increases are supported by the DEX liquidity.

Reserve Factor

Given the successful snapshot to add USDS on Moonwell Core market, Gauntlet recommends aiding full deprecation of the DAI market by scaling reserve factor to 100%.

IR Parameters

USDC IR Parameters

Gauntlet recommends further increase in borrowing APRs by an additional ~50bps for stablecoins to align with market conditions as the SSR continues to have a floating rate of 12.5%. This adjustment ensures competitive borrowing rates while maintaining the protocol’s ability to attract liquidity. However, we advise against applying the same interest rate adjustments to EURC for now, as its usage dynamics differ from that of USDC (see below for utilization trends). This measured approach allows us to balance incentivizing borrowing demand with maintaining healthy utilization and rate stability across the platform.

Recommended USDC IR Curve

Projected APRs for USDC

Utilization Borrow APR Supply APR
0 0 0
kink 6.03 4.88
100 96 86.4

Current APRs for USDC

Utilization Borrow APR Supply APR
0 0 0
kink 5.49 4.44
100 95 85.54

cbBTC IR Parameters

Utilization for cbBTC has continued to decline despite prior adjustments, indicating persistently low borrowing demand. This is further highlighted post the reduction in kink and borrow APRs implying that borrowing demand has not sustained. Given the increasing supplies as seen from the trends below and overall declining borrows, Gauntlet recommends optimizing for the supply APR and align these to the broader market rates.

Recommended cbBTC IR Curve

Projected APRs for cbBTC

Utilization Borrow APR Supply APR
0 0 0
kink 2.45 0.77
100 131.5 118.4

Current APRs for cbBTC

Utilization Borrow APR Supply APR
0 0 0
kink 1.57 0.49
100 131.5 118.4

Optimism

Simple Summary

A proposal to adjust 5 risk parameter:

Risk Parameter Current Value Recommended Value
weETH Supply Cap 560 860
VELO Supply Cap 35,000,000 42,000,000
WETH Borrow Cap 9,500 11,000
weETH Collateral Factor 74% 78%
WBTC Collateral Factor 10% 0.1%

IR Parameters

A proposal to adjust IR parameters for USDC, USDT,and DAI

USDC IR Parameters Current Recommended
Base 0 0
Kink 0.9 0.9
Multiplier 0.061 0.067
Jump Multiplier 9 9
USDT IR Parameters Current Recommended
Base 0 0
Kink 0.9 0.9
Multiplier 0.061 0.067
Jump Multiplier 9 9
DAI IR Parameters Current Recommended
Base 0 0
Kink 0.9 0.9
Multiplier 0.061 0.067
Jump Multiplier 9 9

Rationale

Supply and Borrow Caps

Collateral Factors

weETH

To align with Collateral Factors on the Base market, Gauntlet recommends increasing the CF for weETH from 0.74 → 0.78. This is based on Gauntlet’s simulation methodology which exhausts a variety of market risk scenarios against current and projected user profiles and behaviors. The objective is to set values per asset that minimize the expected insolvency loss across scenarios while continuing to provide a high degree of capital efficiency and sufficient growth prospects for the protocol.

The largest positions in weETH are predominantly recursive, with 9 out of the top 10 positions borrowing recursively using weETH as collateral. The recommended Collateral Factors incorporate sufficient buffers to withstand substantial price drawdowns, ensuring the protocol’s resilience even in volatile market conditions.

WBTC deprecation

We propose reducing the collateral factor (CF) from 10% to 0.1% to aid in full deprecation of this market. These adjustments are designed to minimize the protocol’s exposure and ultimately depcreate WBTC. The reduction in CF will not trigger any liquidations.

IR Parameters

USDC, DAI and USDT

For the same reasons cited in the Base market, we recommend increasing the borrow APR at kink by an additional 50bps to mirror demand for leverage.

Recommended USDC, DAI and USDT IR Curve

Projected APRs for USDC, USDT and DAI

Utilization Borrow APR Supply APR
0 0 0
kink 6.03 4.88
100 96 86.4

Current APRs for USDC, USDT and DAI

Utilization Borrow APR Supply APR
0 0 0
kink 5.49 4.44
100 95 85.54

Moonbeam

Simple Summary

A proposal to adjust 3 total risk parameters:

Parameter Current Value Recommended Value
USDC.wh Collateral Factor 39% 36%
WETH.wh Collateral Factor 33% 28%
WBTC.wh Collateral Factor 14% 11%

Rationale

Risk Parameters

Collateral Factor

We continue recommending a reduction in Collateral Factors across all Wormhole assets i.e. USDC.wh (39% → 36%), WETH.wh(33% → 28%), WBTC.wh (14% → 11%). The proposed reduction in CFs will trigger liquidations of positions totaling ~$700 in supplies and ~$200 in borrows. The positions poised to be liquidated are listed below.

User Address Total Supply Balance (USD) Total Borrow Balance (USD) Initial Borrow Usage New Borrow Usage Initial Health Factor New Health Factor
0xe6c94137b9276def90c19776679ed9723fa701bd 306 117.43 0.985 1.067 1.015 0.937
0xce02ff4ad39201a05fdb98de1b292cab26702c9b 138 44.42 0.972 1.146 1.028 0.873
0xbbf5f02b352f6743181bd63b194410d26dcfa812 149 19.94 0.957 1.218 1.045 0.821
0xbc0c97afdd83a4ae1f46e5f5fd7a627b770c0982 68 7.84 0.824 1.049 1.214 0.954

Moonriver

Gauntlet does not recommend any risk parameters for the Moonriver market at this time.

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.

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