Following the recent Multichain incident, Gauntlet aims to offer valuable guidance to the community on minimizing risk exposure to Multichain assets (USDC.multi, USDT.multi, ETH.multi, BTC.multi).
Currently —
- total non-multichain borrows collateralized by Multichain assets is less than $90k
- additional supply and borrow of Multichain assets is disabled, additional borrow of non-Multichain assets is also disabled
In order to mitigate potential risks associated with these assets, we recommend to safely deprecate these assets. We offer a fast deprecation plan (Option 1), or a more iterative deprecation plan (Option 2). Gauntlet intends to proceed with Option 1 by proposing an MIP on Monday. We recommend faster deprecation in order to more quickly return the protocol back to normal operations, due to the inherent uncertainty in the Multichain bridge recovering. However, if the community expresses interest in Option 2, we will initiate a snapshot vote to determine the preferred course of action between the two options.
General Recommendation
Gauntlet recommends these actions no matter what option the community decides to move forward with.
- Continue to freeze borrowing and supply of Multichain assets. This will prevent additional supply and borrow of compromised Multichain assets.
- Increase RF: To incentivize users to withdrawal their multi-chain supply and close debt positions, we recommend increasing the reserve factor to (RF) 99%.
| Risk Parameter Recs | USDC.multi | ETH.multi | USDT.multi | BTC.multi |
|---|---|---|---|---|
| Reserve Factor | 15% → 99% | 25% → 99% | 15% → 99% | 25% → 99% |
| Collateral Factor | 68% → 0% | 62% → 0% | 46% → 0% | 0% |
- Decrease Rewards: Decrease borrow and supply rewards for MultiChain assets to 0.
- Unpause Transfers : Combined with setting the CF to 0, this may reduce Apollo’s exposure to Multichain assets.
Option 1 - Fast deprecation
(Gauntlet recommended) Gauntlet recommends to deprecate Multichain assets with the following levers below.
-
Set CF to 0: We recommend to set the collateral factor (CF) to 0 for all Multichain assets. This means that users will no longer be able to borrow against these assets and would be actionable for a forced liquidation.
-
Reenable borrowing for non-multichain assets. This returns normal functionality to non-multichain assets.
Liquidation Impact as of July 7th
| Number of Users | Borrow Balance USD | Supply Balance USD | Liquidatable Amount | Multichain Supply USD | Multichain Borrow USD |
|---|---|---|---|---|---|
| 125 | $743,306 | $1,311,901 | $691,394 | $1,218,326 | $657,377 |
Total (both Multichain and non Multichain) supply balances (in market rate USD) against the loan to value of the account.
* High proportion of account balances on Apollo have LTV below 80%
Option 2 - Iterative deprecation
The current status of the Multichain bridge is unclear, given that the market is currently pricing Multichain Assets at 20%-40% below native assets. Gauntlet cannot predict the likelihood that the bridge recovers. If the community wishes to more slowly reduce the protocol’s exposure to Multichain assets, then they may choose to lower Multichain assets collateral factors iteratively to 0 under the following framework, rather than immediately as in Option 1.
- Do not decrease collateral factors to 0 immediately but lower them periodically. Gauntlet will devise a schedule to bring down Multichain assets’ CFs iteratively.
- Continue to freeze borrowing of both non-multichain assets and Multichain assets; continue to freeze supply of Multichain assets
| CF Decrease (Points) | Number of Users | Borrow Balance USD | Supply Balance USD | Liquidatable Amount | Multichain Supply USD | Multichain Borrow USD |
|---|---|---|---|---|---|---|
| - 5% | 23 | $403,029 | $608,514 | $30,623 | $608,143 | $347,928 |
| Asset | CF Changes |
|---|---|
| USDC.multi | 68% → 63% |
| ETH.multi | 62% → 57% |
| USDT.multi | 46% → 41% |
Supporting Data
The impact from the Multichain hack can be seen with Solarbeam’s swap data. As shown within the liquidity chart of MOVR/USDC, there was an initial spike in liquidity but eventually started towards a downward trend.
MOVR/USDC Liquidity
Pricing for USDC dropped precipitously initially during the depeg but has rebounded to .125. This is still 30% below market rate for USDC native to MOVR.
Notes
- It’s important to note that the above steps provide a general framework for the deprecation plan. Depending on the specific circumstances and requirements of Multichain Assets, additional steps or modifications may be necessary.
- In the event that the oracle associated with MultiChain assets is not reflecting accurate market price, it means that liquidations will not occur for market rate insolvent accounts. This is because the liquidated collateral would be worth less than the amount repaid. However, liquidations will still occur for market rate solvent accounts.
