Gauntlet’s BASE/Moonbeam/Moonriver Recommendations (2023-11-07)

Gauntlet · November 7, 2023, 10:11pm

Gauntlet’s BASE Recommendations

Simple Summary

Risk Parameters

A proposal to adjust 4 risk parameters:

Risk Parameter	Current Value	Recommended Value
WETH Collateral Factor	80%	81%
cbETH Collateral Factor	75%	76%
DAI Supply Cap	10,000,000	7,500,000
USDC Collateral Factor	82%	83%

Rationale:

Risk Parameters

Our recommendations have an estimated VaR at $0 and remains unchanged. LaR increased to $647k from $627k with our current recommendations. Based on simulation results, Gauntlet recommends increasing the collateral factors for WETH, cbETH, and USDC in order to improve capital efficiency.

USDC Positions

Top 3 USDC collateral positions are recursive.

WETH Positions

Top 2 WETH collateral positions are recursive.

cbETH Positions

Largest supplier of cbETH is utilizing the cbETH as collateral to borrow ETH.

BASE Liquidity

Asset	Borrow Cap	Supply Cap	Borrow Cap Usage	Supply Cap Usage	DEX 25pct Slippage Token
WETH	6,300	10,500	31.59%	38.32%	3,753
USDbC	4,000,000	5,000,000	22.07%	34.02%	3,046,369
DAI	5,000,000	10,000,000	33.71%	40.55%	2,766,369
USDC	5,000,000	10,000,000	67.16%	42.41%	3,068,939
cbETH	1,000	4,000	31.05%	57.72%	2,434

BASE Circulating Tokens and Supply Cap

Assets	Circulating Supply	Supply Cap	Supply Cap ($)	Supply Cap / Circulating Supply
WETH	36,746	10,500	$18,921,000	28.57%
USDbC	80,702,780	10,000,000	$10,000,000	12.39%
DAI	10,952,120	10,000,000	$10,000,000	91.31%
cbETH	18,491	4,000	$7,596,000	21.63%
USDC	154,747,505	10,000,000	$10,000,000	6.46%

Current Supply Cap of DAI represents 91% of circulating supply. At this time, the supply of DAI has decreased this past month by 37%. As a precaution of the decrease of on-chain circulating supply of DAI, we recommend to decrease supply cap to 7.5M DAI. This supply cap decrease should not impact capital efficiency and UX.

DAI Circulating Supply on BASE

Link to the chart

IR Parameters

When Gauntlet analyzes interest rate parameters, we prioritize two main objectives:

Mitigating the risk of reaching 100% utilization in a pool.
Maximizing the growth of the protocol reserve to provide coverage for potential insolvencies or future expenses.

For this recommendation, Gauntlet advises against making any adjustments to the interest rate curves, as they are already optimized to achieve these objectives.

Moonwell BASE Projected Revenue KPIs

Projected Annual Reserves

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.

Supporting Data

The below figures show trends on key market statistics regarding borrows and utilization that we will continue to monitor:

Top 10 Borrowers’ Aggregate Positions & Borrow Usages

Top 3 debt positions on Base market are recursive.

Top 10 Borrowers’ Entire Supply

_{Link to Chart}

Top 10 Borrowers’ Entire Borrows

_{Link to Chart}

Utilization Rate of Assets - Timeseries

_{Link to Chart.}

Borrow Cap Utilization

Supply Cap Utilization

Balances by User Strategies

LST Yield Farming sits at 11.668% for all outstanding debt positions with 62% of debt positions being recursive.

Circulating Token USDC vs USDbC Supply

Gauntlet continues to monitor liquidity and circulating supply USDbC. USDbC circulating supply has decrease by 17% since early in October but there is still strong liquidity and adoption of USDbC within the BASE ecosystem.

Stablecoin 25% Slippage on BASE

Non-Stablecoin 25% Slippage on BASE

Collateral Usage and Collateralization Ratios

WETH has the highest collateral usage with largest collateralization ratio for the BASE market. DAI’s collateral usage is only at $1.46M with borrowing power of ~$3.5M.

DAI Positions

The largest supplier of DAI (0xb91107) does not utilize DAI as collateral. This position has a borrowing power of $1.74M. DAI has the lowest borrow usage on the protocol.

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.

Moonbeam Recommendations

Simple Summary

A proposal to adjust 2 total risk parameters:

Parameter	Current Value	Recommended Value
USDC.wh Borrow Cap	2,200,000	2,400,000
WETH.wh Collateral Factor	50%	52%

Rationale:

Risk Parameters

Our recommendations have an estimated VaR at $0 and remains unchanged. LaR increased to $578k from $577k with our current recommendations. Based on simulation results, Gauntlet recommends increasing the collateral factors for WETH.wh in order to improve capital efficiency. The collateral factors for WGLMR, WBTC.wh, xcUSDT,FRAX, USDC.wh and xcDOT effectively balance risk with capital efficiency.

We recommend to increase USDC.wh borrow caps based on borrow cap usage (~100%) and current USDC.wh’s on-chain liquidity and positions.

USDC.wh On-chain Total Circulating Supply

Circulating supply of USDC.wh has rebounded since our last recommendation.

Top 10 Positions ordered by USDC.wh borrows

Top 3 Borrow positions of USDC.wh ($1.19M) are recursive positions. These positions represent 60% of outstanding USDC.wh borrow positions.

Top 10 Positions order by WETH.wh supply

WETH.wh’s has $510k in collateral usage with 32% borrower usage. The largest supplier of WETH on the moonbeam market does not have a debt position.

Analyzing Gauntlet’s risky borrower dashboard, the largest collateral position with WETH.wh has a borrow position of $612k with a 1.2 health factor. Positions below 1.1 health factor are recursive.

As we make recommendations through our risk models, we keep a constant check on the market liquidity and concentration risk to the Moonbeam protocol. In this regard, we would like to present some key liquidity figures for Moonbeam assets to share with the community. Since our last post, liquidity has decreased across all listed assets.

Asset	Borrow Cap Relative to Supply	Total Circulating Supply	25% Depth	25% Depth USD	25% Depth - Prev Month
WETH.wh	8%	2,521	19	$34,181	20
USDC.wh	74%	2,863,831	180,000	$180,000	260,000
WBTC.wh	19%	190.6154	1.5	$52,052	2
xcUSDT	114%	1,004,228	145,000	$145,000	270,000
xcDOT	50%	1,061,868	18,000	$81,720	12,000
FRAX	87%	5,319,872	145,000	$145,000	120,000
WGLMR*	58%	11,503,046	400,000	$82,800	250,000

_{*WGLMR circulating supply doesn’t include non-wrap tokens.}

Stablecoin liquidity had experienced a large drop in mid-October. As shown in the image below, there was a large liquidity outflow from USDC.wh / USDt.xc / FRAX Stablepool but stablcoin liqudity has rebounded in Stellaswap with recent incentivization push.

IR Parameters

When Gauntlet analyzes interest rate parameters, we prioritize two main objectives:

Mitigating the risk of reaching 100% utilization in a pool.
Maximizing the growth of the protocol reserve to provide coverage for potential insolvencies or future expenses.

For this recommendation, Gauntlet advises against making any adjustments to the interest rate curves, as they are already optimized to achieve these objectives.