Base
Simple Summary
A proposal to adjust 8 risk parameters:
| Risk Parameter | Current Value | Recommended Value |
|---|---|---|
| AERO Supply Cap | 28,500,000 | 35,000,000 |
| AERO Borrow Cap | 18,500,000 | 25,000,000 |
| cbBTC Supply Cap | 220 | 280 |
| USDbC Supply Cap | 250,000 | 150,000 |
| USDbC Borrow Cap | 200,000 | 150,000 |
| DAI Supply Cap | 2,000,000 | 750,000 |
| DAI Borrow Cap | 1,500,000 | 500,000 |
| USDbC Reserve Factor | 50% | 75% |
*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 | 0.056 | 0.05 |
| Jump Multiplier | 9 | 9 |
| cbBTC IR Parameters | Current | Recommended |
|---|---|---|
| Base | 0.02 | 0 |
| Kink | 0.6 | 0.6 |
| Multiplier | 0.065 | 0.067 |
| Jump Multiplier | 3 | 3 |
Rationale
Risk Parameters
Gauntlet advises an increase in Caps across AERO and cbBTC while recommending to reduce caps for DAI and USDbC. Gauntlet also recommends to increase RF for USDbC to further catalyze deprecation of this market. Gauntlet suggests these changes to risk parameters to enhance capital efficiency and effectively manage risk.
Cap Recommendations
- AERO - In accordance with Gauntlet’s methodology for managing parameters, we propose scaling up the supply caps (28,500,000 → 35,000,000) and borrow caps(18,500,000 → 25,000,000) for AERO. Since the most recent increase in caps in the monthly recommendation, the largest supply-only positions have provided further liquidity in the market. This showcases that increase in supply caps have further increased risk-free and unleveraged liquidity within the protocol.
AERO Top 20 suppliers
25% DEX Slippage 8/24
25% DEX Slippage 9/24
Despite previous cautionary notes concerning AERO liquidity, the current decentralized exchange (DEX) liquidity has exhibited considerable strength. The existing caps are well-supported by DEX liquidity, with notional liquidity trending upwards in the two largest AERO pools.
-
cbBTC - Similarly, cbBTC supplies are reaching the threshold that warrant cap changes. Gauntlet recommends increasing supply caps (220 → 280). The liquidation of the entire supply cap incurs 20% slippage. All most all suppliers have USDC debt against their cbBTC supply.
Top 20 cbBTC suppliers
DEX Slippage
-
USDbC - In line with previous cap decreases, Gauntlet recommends reducing both the supply (250,00 → 150,000) and borrow caps (200,000 → 150,000) to further catalyze deprecation process.
-
DAI - DAI Caps have been heavily underutilized, this drop in demand stems from decrease in outstanding supply on Base. The deterioration of DEX liquidity is a consequence of this. Gauntlet recommends reducing supply caps (2,000,000 → 750,000) and borrow caps (1,500,000 → 500,000) and would suggest the community to take similar measures as USDbC to deprecate this market unless Sky (MakerDAO) take further steps to support liquidity/activity on Base.
Base Liquidity
| Asset | Borrow Cap | Supply Cap | Borrow Cap Usage | Supply Cap Usage | DEX 25pct Slippage Token | DEX 25pct Slippage USD |
|---|---|---|---|---|---|---|
| EURC | 3,900,000 | 4,200,000 | 25.91% | 30.11% | 1,445,091 | $1,612,569.82 |
| weETH | 350 | 900 | 11.47% | 23.46% | 501 | $1,356,348.10 |
| WETH | 40,000 | 60,000 | 46.79% | 40.70% | 785 | $2,028,123.49 |
| USDC | 92,000,000 | 100,000,000 | 25.12% | 36.11% | 2,028,298 | $2,028,500.73 |
| wstETH | 2,400 | 6,300 | 40.06% | 68.71% | 660 | $2,009,953.30 |
| cbETH | 3,200 | 8,000 | 32.73% | 61.64% | 425 | $1,185,525.19 |
| cbBTC | 80 | 220 | 7.35% | 80.29% | 28 | $1,779,826.62 |
| DAI | 1,500,000 | 2,000,000 | 23.81% | 24.67% | 237,535 | $237,558.93 |
| rETH | 450 | 1,200 | 50.74% | 82.60% | 571 | $1,649,969.89 |
| AERO | 18,500,000 | 28,500,000 | 70.26% | 83.48% | 2,821,920 | $2,494,594.67 |
| USDbC | 200,000 | 250,000 | 51.15% | 68.24% | 2,047,201 | $2,047,405.77 |
Reserve Factor
In continuation of our prior recommendation, we advise increasing the reserve factor for USDbC from 50% to 75%. This adjustment aims to establish less attractive supply rates, thereby discouraging both current and prospective suppliers from contributing USDbC. By making the supply rates less competitive, this strategy is expected to significantly enhance reserve accumulation, effectively facilitating the market’s transition to USDC.
Collateral Factors (CF)
Since the succesful execution of MIP-B27, The aggregate notional supplies and borrows for WETH and LSTs have increased substantially as a consequence of the capital-efficient adjustments to Collateral Factors (CFs). Gauntlet is actively monitoring the current borrow-supply positions and the prevailing market liquidity for these asset pairs to further calibrate and optimize the CF parameters.
IR Parameters
cbBTC IR Parameters
The borrows for cbBTC has not scaled commensurately with the increased supply of cbBTC, leading to significantly low utilization rates for this asset. Historically, cbBTC has exhibited persistently low borrowing demand; however, emerging strategies involving liquidity provision (LP) into AERO pools may present opportunities to augment this utilization. In light of these developments, Gauntlet recommends recalibrating the borrow Annual Percentage Rate (APR) from 5.9% to 4% to address the low utilization, maintain competitive positioning within the market and to enable profitable cross-platform rate arbitrages.
Recommended cbBTC IR Curve
Projected APRs for cbBTC
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 4.02 | 2.17 |
| 100 | 124.02 | 111.61 |
Current APRs for cbBTC
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 2 | 0 |
| kink | 5.89 | 3.18 |
| 100 | 124.02 | 111.61 |
Gauntlet will monitor the utilization of cbBTC and consider additional actions if necessary.
USDC IR Parameters
Stablecoin utilization has been trending downwards for a significant period, the previous caliberation to lower borrow APRs has had positive increases in this metric, however, given the Federal Rate cuts of Interest Rates by 50bps, along with the decreased appetite for leverage, Gauntlet recommends reducing the borrow APRs by another 50bps on Moonwell to discover true market rates.
Recommended USDC IR Curve
Projected APRs for USDC
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 4.5 | 3.64 |
| 100 | 95.05 | 85.45 |
Current APRs for USDC
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 5.05 | 4.08 |
| 100 | 95.05 | 85.45 |
Optimism
Simple Summary
A proposal to adjust 6 risk parameter:
| Risk Parameter | Current Value | Recommended Value |
|---|---|---|
| WETH Supply Cap | 3,200 | 5,000 |
| WETH Borrow Cap | 2,700 | 4,000 |
| VELO Supply Cap | 9,000,000 | 12,700,000 |
| WBTC Borrow Cap | 10 | 4 |
| WBTC Reserve Factor | 30% | 40% |
| WBTC Collateral Factor | 79% | 67% |
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 | 0.056 | 0.05 |
| Jump Multiplier | 5 | 9 |
| USDT IR Parameters | Current | Recommended |
|---|---|---|
| Base | 0 | 0 |
| Kink | 0.9 | 0.9 |
| Multiplier | 0.056 | 0.05 |
| Jump Multiplier | 5 | 9 |
| DAI IR Parameters | Current | Recommended |
|---|---|---|
| Base | 0 | 0 |
| Kink | 0.9 | 0.9 |
| Multiplier | 0.056 | 0.05 |
| Jump Multiplier | 5 | 9 |
Rationale
Supply Cap
- WETH - In accordance with Gauntlet’s methodology for managing parameters, we propose scaling up the supply caps (3,200 → 5,000 ) and borrow caps(2,700 → 4,000).
WETH Top 20 suppliers
DEX Slippage to liquidate largest position
- VELO - We recommend increasing the supply cap of VELO (9,000,000 → 12,700,000 ). The liquidation of the entire supply cap would only incur a slippage opf 20%.
VELO Top 20 suppliers
25% DEX Slippage
IR Parameters
As explained in the IR recommendations for Base, the borrow rates for stablecoins have been trending downwards as reflected in the DSR. Keeping this in mind, we recommend aligning borrow rates for stablecoins on Optimism to those of Base from 5% to 4.5%.
Recommended IR Curve for stablecoins
Projected APRs for Stablecoins (USDC, USDT, DAI)
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 4.5 | 3.64 |
| 100 | 95.05 | 85.45 |
Current APRs for Stablecoins (USDC, USDT, DAI)
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 5.05 | 4.08 |
| 100 | 95.05 | 85.45 |
Note on deprecation of WBTC on Optimism
Over the past few weeks, there has been a further erosion of clarity regarding the custodial arrangements for WBTC. Transparency on additional safeguards—such as guarantees against future changes to the multisignature (multisig) structure and commitments to provide 60-day notice periods for any alterations—remains lacking and serves as a significant impediment to alleviating concerns.
Currently, $1.58 million worth of WBTC is supplied and $200,000 is borrowed on Moonwell’s Optimism instance, accounting for 5.5% and 2.3% of total supplies and borrows respectively. Moonwell’s exposure to WBTC is minimal compared to that of peer protocols. Given this limited exposure, deprecating the market entirely would have a negligible impact on the protocol’s Total Value Locked (TVL). However, prioritizing user experience, we recommend a controlled reduction in WBTC exposure while maintaining overall usability. Until substantial evidence addresses the aforementioned concerns, Gauntlet advises a gradual but exponential increase in reserve factors as a strategy to mitigate underwriting risk associated with WBTC. This approach aims to achieve three objectives:
- Decrease exposure to WBTC.
- Provide the community with ample time to consider alternatives.
- Facilitate the transition or migration of users to alternative assets.
The proposed schedule for reserve factor increases is designed to deprecate this asset within 3 months, should confidence not be restored.
| Month | Reserve Factor Increase | Recommended Reserve Factor |
|---|---|---|
| September | +10% | 40% |
| October | +20% | 60% |
| November | +40% | 100% |
Apart from the reserve factor changes, permitting limited liquidations, Gauntlet will also reduce collateral factors. Gauntlet also recommends pausing new supplies and borrows for this asset to assist in the deprecation. Gauntlet will continue to monitor further developments and make necessary adjustments.
Moonbeam
Simple Summary
A proposal to adjust 7 total risk parameters:
| Parameter | Current Value | Recommended Value |
|---|---|---|
| WBTC.wh Borrow Cap | 1 | 0.75 |
| WETH.wh Borrow Cap | 40 | 30 |
| FRAX Borrow Cap | 100,000 | 60,000 |
| USDC.wh Collateral Factor | 51% | 50% |
| WETH.wh Collateral Factor | 45% | 43% |
| WBTC.wh Collateral Factor | 28% | 25% |
| xcUSDC Collateral Factor | 15% | 60% |
| WBTC.wh Reserve Factor | 35% | 40% |
Rationale
Risk Parameters
Cap Recommendations
Gauntlet recommends taking continued risk-off measures for the Moonbeam markets. On that note, we suggest reducing borrow caps for WBTC.wh (1 → 0.75), WETH.wh (40 → 30) and FRAX (100,000 → 60,000). The updated borrow caps should reduce exposure to risk stemming from declining liquidity conditions.
Collateral Factor
Similarly, Gauntlet recommends reducing Collateral Factors across all wormhole assets i.e. USDC.wh (51% → 50%), WETH.wh(45% → 44%), WBTC.wh (28% → 25%). The proposed reduction in CF will not liquidate any positions. On the other hand, on-chain supply and liquidity for xcUSDC has been trending upwards, and we recommend increasing the Collateral Factor for xcUSDC from 15% to 60%, matching that of xcUSDT. Although we do propose an increase in CFs, we recommend holding off increasing the borrow caps until the liquidity is proven to be sticky. This increase in CF should provide higher capital utilization for users.
Note on deprecation of WBTC on Moonbeam
As mentioned in the Optimism section, Gauntlet recommends increasing RFs for WBTC.wh. Currently, $10.1 million worth of WBTC is supplied, and $30,000 is borrowed on Moonwell’s Moonbeam instance, representing 50% and 1.3% of total supplies and borrows, respectively. Moonwell’s exposure to WBTC is substantial compared to the Optimism instance. Notably, over 99% of the WBTC supply originates from a single user who has supplied $9.9 million with no corresponding debt. However, given the overall declining liquidity on Moonbeam—which exacerbates the concentration risk of WBTC.wh, accounting for two-thirds of the platform’s circulating supply—we recommend adopting the same approach and schedule to deprecate this asset as suggested on Optimism.
The proposed schedule for reserve factor increases is designed to deprecate this asset within 3 months, should confidence not be restored.
| Month | Reserve Factor Increase | Recommended Reserve Factor |
|---|---|---|
| September | +5% | 40% |
| October | +20% | 60% |
| November | +40% | 100% |
Apart from the reserve factor changes, permitting limited liquidations, Gauntlet will also reduce collateral factors. Gauntlet also recommends pausing new supplies and borrows for this asset to assist in the deprecation. Gauntlet will continue to monitor further developments and make necessary adjustments.
Moonriver
Simple Summary
A proposal to adjust IR parameters for xcKSM
| xcKSM IR Parameters | Current | Recommended |
|---|---|---|
| Base | 0.02 | 0.02 |
| Kink | 0.45 | 0.45 |
| Multiplier | 0.1 | 0.035 |
| Jump Multiplier | 3.5 | 3.5 |
Rationale
IR Parameters
The xcKSM market has residual bad debt that’s accruing interest. This bad debt is an outcome of the Multichain hack where the user has supplied Multichain USDC to borrow xcKSM. Gauntlet has previously recommended reducing borrow APR in order to not accumulate more interest on debt. We recommend further lowering the borrow APR until the debt is cleared.
We would like to flag that the reserves on Moonriver are sufficient to cover the debt, and we will work with the community to arrive at a meaningful remedy.
Recommended xcKSM IR Curve
Projected APRs for xcKSM
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 2 | 0 |
| kink | 3.575 | 1.04 |
| 100 | 195.05 | 127.45 |
Current APRs for xcKSM
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0 | 0 |
| kink | 6.5 | 1.9 |
| 100 | 199.05 | 129.3 |
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
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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.