Apollo Summary
We recommend unpausing mint for the following markets:
- FRAX
- xcKSM
- MOVR
- ETH.multi
- USDC.multi
- USDT.multi
We recommend the following parameter changes:
- Decrease the FRAX collateral factor from 59.5% to 58.0%.
- Decrease FRAX borrow cap from 3,000,000 to 1,000,000
- Decrease USDT.multi borrow cap from 2,482,000 to 600,000
- IR Curves Recs listed in the table below and detailed at the bottom of the post
IR Curve Recommendations:
| Token | Base | Kink | Multiplier | Jump Multiplier | Reserve Factor |
|---|---|---|---|---|---|
| FRAX | 0.02→0 | 0.8 | 0.1→0.05 | 1.09→2.5 | 0.15 |
| USDC | 0.02→0 | 0.8 | 0.1→0.05 | 1.09→2.5 | 0.15 |
| USDT | 0.02→0 | 0.8 | 0.1→0.05 | 1.09→2.5 | 0.15 |
| ETH | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
| KSM | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
| MOVR | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
| WBTC | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
Unpause Rationale:
There was an exploit to Hundred Finance, a Compound fork on the Optimism L2 over the weekend and Moonwell Pause Guardians paused supply to all Moonwell markets to protect the protocol from this novel exploit. At this current time, Gauntlet’s analysis indicates that the recommended unpause assets are not at risk from this exploit.
In light of the recent events and current BTC.multi market conditions on Moonriver chain, Gauntlet would recommend maintaining the pause on supply for BTC.multi based on the following reasons:
- Low Supply Balance
- LP pool is generating a small annualize revenue (estimated $210 ARR).
- BTC.multi only has 6.40 circulating on Moonriver ecosystem and 25% slippage at .1 BTC.multi.
CF and Borrow Cap Rationale:
The VaR is $0 and our recommendations will leave it unchanged. The LaR is $167k and our recommendations will leave it unchanged. Our recommendations will decrease borrow usage from 84.94% to 84.83%. ETH.multi has a VaR of $0 and a LaR of $4.62k. USDT.multi has a VaR of $0 and a LaR of $0. WMOVR has a VaR of $0 and a LaR of $71.92k. xcKSM has a VaR of $0 and a LaR of $94.14k. FRAX has a VaR of $0 and a LaR of $78. USDC.multi has a VaR of $0 and a LaR of $14.63k.
Solarbeam (DEX) has experienced a large outflow of FRAX liquidity since Jan 2023. FRAX’s 25% market depth on Solarbeam is at $125k (8% increase since last rec) while collateral usage for FRAX on Apollo is $429k. With Moonriver DEXes having low FRAX liquidity for potential liquidations, Gauntlet recommends lowering collateral factors to reduce insolvency risk. This de-risking of FRAX will have a relatively small cost in capital efficiency.
USDC.multi, ETH.multi, USDT.multi, WMOVR, and xcKSM’s collateral factors are effectively balancing risk and capital efficiency.
Gauntlet analyzes assets’ on-chain liquidity and potential risk of short market manipulation attack to assess borrow cap recommendations. With FRAX and USDT.multi’s low borrow cap usage and decreasing liquidity on decentralize exchanges, we recommended lowering the caps to reduce risk.
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 10 Borrowers’ Entire Supply
Top 10 Borrowers’ Entire Borrows
Risk Dashboard
The community should use Gauntlet’s Apollo Risk Dashboard to better understand the updated parameter suggestions and general market risk in Apollo.
Value at Risk represents the 95th percentile insolvency value that occurs from simulations we run over a range of volatilities to approximate a tail event.
Liquidations at Risk represents the 95th percentile liquidation volume that occurs from simulations we run over a range of volatilities to approximate a tail event.
IR Recommendation Simple Summary
Gauntlet presents a proposal to update the interest rate parameters for all active assets on Apollo. We propose two new interest rate curves, one for stablecoins and one for non-stable assets.
Abstract
The interest rate curves on Apollo and Artemis have not been changed over the lifespan of the protocols. Given the significant shifts in crypto markets, Gauntlet has evaluated assets on Moonwell and has identified an opportunity to overhaul the interest rate parameters of all the assets to benefit the protocol.
Background
Interest rates are core to lending protocols like Apollo and Artemis. Without interest, suppliers have no reason to supply and borrowers have nothing stopping them from hoarding available borrows. Interest rates are set per asset, and are a function of the asset’s utilization (total amount borrowed divided by total amount supplied). All borrowable assets on Moonwell use a Jump Rate Model as this function, with an example interest rate curve for the Jump Rate Model shown below.
Under the Jump Rate Model, the borrower interest rate slowly increases linearly with utilization until it hits a certain point (the “kink” in the curve), at which point it increases much faster with utilization. The 4 parameters defining this curve are:
- Base: interest rate at 0 utilization
- Multiplier: the slope of the curve below the kink
- Kink: the utilization level at which the slope increases
- Jump Multiplier: the slope of the curve above the kink
All the interest paid by borrowers is split between the suppliers (in the form of supplier interest) and the protocol reserves. This split is governed by the reserve factor parameter for an asset, which is the proportion of the interest that goes to the reserves while the rest goes to suppliers. Thus the supplier interest rate curve is defined in terms of the borrower interest rate curve, where the supplier interest rate is utilization * (borrower interest rate) * (1 - reserve factor).
It is important to note that these interest rates are separate from the token distribution incentives provided in the form of GLMR, WELL, MFAM, and MOVR. The APY from token distribution is added to the normal borrow or supply APY, which is computed as the Net APY and shown on the Moonwell frontend. At the moment, the token distribution incentives for many assets is greater than the standard borrow or supply rates. Within the context of this set of recs, our usage of the terms “borrower rate” and “supply rate” refer to the rates as defined above, and not the net APY rate. We kept the token distribution incentives in mind when making our rates, but do not propose any changes to them in this recommendation.
The Status Quo
Currently, all assets on Moonwell share the same interest rate curve:
- Base: 0.02
- Kink: 0.8
- Multiplier: 0.1
- Jump Multiplier: 1.09
As adjusted in our recent reserve factor recommendation, stablecoins on Moonwell use a reserve factor of 0.15 and all other assets use a reserve factor of 0.25. The table below shows the current borrow rate (BR) and supply rate (SR) for stablecoins and non-stablecoins at 0% utilization, 80% utilization (the kink), and 100% utilization.
| Stablecoins | Non-Stablecoin | |
|---|---|---|
| 0% BR | 2.00% | 2.00% |
| 0% SR | 0.00% | 0.00% |
| Kink BR | 10.52% | 10.52% |
| Kink SR | 8.94% | 7.89% |
| 100% BR | 37.42% | 37.42% |
| 100% SR | 31.81% | 28.06% |
Methodology
Among other factors, there are 2 main objectives to keep in mind when setting an interest rate curve:
- Mitigate the risk of 100% utilization in a pool
- Maximize protocol reserve growth to cover insolvencies or other expenses in the future
Of these, mitigating the risk of 100% utilization is the most important. High utilization is poor UX for suppliers, as it can restrict their ability to withdraw an asset from the pool. For example, if a pool contains $10M in USDT, and $9M are loaned out, the maximum a supplier could withdraw is $1M since the pool cannot exceed 100% utilization. In addition to impacting suppliers, liquidations may be hindered because at 100% utilization only mTokens (not the underlying collateral) can be seized. If liquidators are concerned they won’t be able to cash these MTokens in for the underlying collateral in time to lock in a profit, this risks leaving the protocol with insolvent debt. Increasing interest rates can be used to motivate borrowers to repay the asset and motivate suppliers to deposit more of the asset. Both would decrease utilization to more desirable levels.
The second use case of building reserves is a little more opportunistic in nature. Reserves serve as the rainy day fund for protocols, protecting against unexpected tail-case events resulting in insolvencies. Over time they may also be used to fund operations, reducing the reliance on the native token treasury. Moreover, interest rates can be used opportunistically to capture increased reserves when specific market conditions are met. Opportunities present themselves when:
-
Users are inelastic to interest rate changes AND/OR
-
An outsized opportunity for yield exists in the market, such that borrowers would be willing to pay a higher premium on the asset (Moonwell can participate in a market upswing)
Motivation & Recommendations
We recommend using two new interest rate curves: one for stablecoins, and one for non-stable assets. Supplying stablecoins to a lending protocol is safer than supplying non-stablecoins because the value of the staked non-stablecoins will fluctuate over time. As such, it is expected that suppliers of non-stablecoins would expect a higher return than the suppliers of stablecoins. It is standard across peer lending protocols to have a split in interest rate curves between safer and less safe assets. Many protocols further differentiate between safer and less safe non-stablecoins, which we can consider for Moonwell in the future, but we consider our initial split to be a sufficent adjustment.
Non-Stablecoins
For non-stablecoins, we recommend the following parameters:
- Base: 0.0
- Kink: 0.6
- Multiplier: 0.15
- Jump Multiplier: 3.0
The chart below compares the proposed curve against the current one.
Borrow and supplier interest rates (BR and SR respectively) at 0% utilization, the kink, and 100% utilization are shown below.
| Non-Stablecoin Recommended | Non-Stablecoin Current | |
|---|---|---|
| 0% BR | 2.00% | 2.00% |
| 0% SR | 0.00% | 0.00% |
| Kink BR | 11.63% | 10.52% |
| Kink SR | 8.72% | 7.89% |
| 100% BR | 269.75% | 37.42% |
| 100% SR | 202.31% | 28.06% |
Across the board, we recommend higher interest rates for non-stablecoins. In particular, we are concerned that the interest rates at high levels of utilization are unusually low under the current interest rate curve. For peer protocols, the maximum interest rates for volatile assets were always in the hundreds. What is particularly concerning is that the maximum borrow rate is further offset by token distribution incentives, making the net borrow APY even lower. The danger of having maximum interest rates this low is that when utilization nears 100%, borrowers lack the incentive to lower the utilization rates by closing their positions and suppliers lack the incentive to lower utilization rates by increasing the supply. When looking at historical usage data for Apollo and Artemis, we indeed found that when utilization reached dangerously high levels, it took a long time for it to come back down to safer levels. As mentioned in the methodology section above, at high utilization levels with a long time window to return to normal utilization, the protocol is at an increase risk of added bad debt. The charts below show the time delay in hours for utilization to come back down to 85% after reaching 90% for several non-stablecoin assets:
As such, we recommend raising the jump multiplier in order to raise this maximum rate, and lowering the kink in order to widen the buffer zone between the kink and 100% utilization. The small increase we suggest in the multiplier helps to increase rates across the board and also keeps the interest rates at the kink close to their current values.
Stablecoins
For stablecoins, we recommend the following parameters:
- Base: 0.0
- Kink: 0.8
- Multiplier: 0.05
- Jump Multiplier: 2.5
The chart below compares the proposed curve against the current one.
Borrow and supplier interest rates (BR and SR respectively) at 0% utilization, the kink, and 100% utilization are shown below.
| Stablecoin Recommended | Stablecoin Current | |
|---|---|---|
| 0% BR | 0.00% | 2.00% |
| 0% SR | 0.00% | 0.00% |
| Kink BR | 4.08% | 10.52% |
| Kink SR | 3.47% | 8.94% |
| 100% BR | 71.53% | 37.42% |
| 100% SR | 60.80% | 31.81% |
Our recommended interest rate curve lowers the interest rate at lower utilization and raises it at higher utilization. This should push utilization closer to the kink point which results in better capital efficiency for the protocol. The interest rate at the kink under our proposal would be closer to market rates. Raising the jump multiplier will raise the maximum interest rates and will help protect Apollo and Artemis against 100% utilization.
Specifications
The tables below summarize the proposed interest rate and reserve factor parameters, with changes denoted by an arrow.
Apollo
| Token | Base | Kink | Multiplier | Jump Multiplier | Reserve Factor |
|---|---|---|---|---|---|
| FRAX | 0.02→0 | 0.8 | 0.1→0.05 | 1.09→2.5 | 0.15 |
| USDC | 0.02→0 | 0.8 | 0.1→0.05 | 1.09→2.5 | 0.15 |
| USDT | 0.02→0 | 0.8 | 0.1→0.05 | 1.09→2.5 | 0.15 |
| ETH | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
| KSM | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
| MOVR | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
| WBTC | 0.02 | 0.8→0.6 | 0.1→0.15 | 1.09→3 | 0.25 |
The table below shows the immediate estimated effects of these interest rate curve changes on the borrow and supply APY for each asset at its current level of utilization. The interest rates below do not include token distribution incentives.
| Protocol | Token | Utilization | Current BR | New BR | Current SR | New SR |
|---|---|---|---|---|---|---|
| Apollo | FRAX | 78.12% | 10.31% | 3.98% | 6.73% | 2.63% |
| USDC | 53.62% | 7.64% | 2.72% | 3.41% | 1.23% | |
| USDT | 54.50% | 7.73% | 2.76% | 3.51% | 1.27% | |
| ETH | 52.24% | 7.49% | 10.34% | 2.87% | 3.93% | |
| KSM | 26.32% | 4.74% | 6.13% | 0.92% | 1.18% | |
| MOVR | 50.34% | 7.29% | 10.02% | 2.69% | 3.67% | |
| WBTC | 21.74% | 4.26% | 5.40% | 0.68% | 0.86% |
Artemis Summary
We recommend unpausing mint for the following markets:
- GLMR
- xcUSDT
- xcDOT
- FRAX
- ETH.wh
- BTC.wh
- USDC.wh
We recommend the following risk parameter changes:
- Decrease the xcDOT collateral factor from 64.0% to 63.0%.
- Increase the xcUSDT collateral factor from 40.0% to 50.0%.
- Increase USDC.wh borrow cap from 1,500,000 to 2,100,000.
- Increase USDT borrow cap from 1,000,000 to 1,200,000.
Rationale:
Hundred finance Exploit Hack
There was an exploit to Hundred Finance, a Compound fork on the Optimism L2 over the weekend and Moonwell Pause Guardians paused supply to all Moonwell markets to protect the protocol from this novel exploit. At this current time, Gauntlet’s analysis indicates that the recommended unpause assets are not at risk from this exploit.
The VaR is $0 and our recommendations will leave it unchanged. Our recommendations will increase LaR from $481k to $514k. xcUSDT is relatively safe from a market risk perspective, so we can gradually increased its collateral factor to improve capital efficiency.
WETH.wh, WGLMR, WBTC.wh, FRAX, and USDC.wh’s collateral factors are effectively balancing risk and capital efficiency.
xcDOT can be de-risked with relatively small impact in capital efficiency, so we recommend decreasing its collateral factor to reduce overall risk. xcDOT’s 25% market depth on Stellaswap is at $338k while collateral usage for xcDOT on Artemis is $2.4M. As of now, we recommend reducing the collateral factor by 100 bps in order to prevent any liquidations which might impact user experience. Further reductions are expected to be recommended in the future.
As we make recommendations through our risk models, we keep a constant check on the market liquidity and concentration risk to the Artemis protocol. In this regard, we would like to present some key liquidity figures for Artemis assets to share with the community.
| Asset | Moonwell Concentration Risk | Total Circulating Supply | 25% Depth | 25% Depth USD |
|---|---|---|---|---|
| ETH.wh | 84% | 2,006.00 | 110 | $209,848 |
| USDC.wh | 60% | 4,404,475.00 | 800,000 | $800,000 |
| WBTC.wh | 83% | 147.64 | 8 | $239,198 |
| xcUSDT | 28% | 1,585,145.00 | 950,000 | $950,000 |
| xcDOT | 46% | 1,142,702.00 | 53,000 | $338,670 |
| FRAX | 10% | 10,319,872.35 | 950,000 | $950,000 |
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 10 Borrowers’ Entire Supply
Top 10 Borrowers’ Entire Borrows
Risk Dashboard
The community should use Gauntlet’s Artemis Risk Dashboard to better understand the updated parameter suggestions and general market risk in Artemis.
Value at Risk represents the 95th percentile insolvency value that occurs from simulations we run over a range of volatilities to approximate a tail event.
Liquidations at Risk represents the 95th percentile liquidation volume that occurs from simulations we run over a range of volatilities to approximate a tail event.
Quick Links
Please click below to learn about our methodologies:
Gauntlet Parameter Recommendation Methodology
Gauntlet Model Methodology
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