Aave’s Stani Kulechov seeks $50m for Lens Protocol at $500m valuation

[ARFC] Aave | Flipside Crypto Facilitator [v2]

[ARFC] Cancel Llama Service Provider Stream 

[ARC] Gauntlet <> Aave Renewal

# Dynamic Risk Parameters



__Author(s): __

---
aip: 29
title: Dynamic Risk Parameters
status: Proposed
author: Nick Cannon (@inkyamze)
shortDescription: Continuous market risk management for Aave V2
discussions: https://governance.aave.com/t/proposal-dynamic-risk-parameters/4854
created: 2021-07-30
updated: 2021-08-02

---

## Simple Summary

A proposal for continuous market risk management to optimize yield, capital efficiency, and mitigate depositor losses.

## Abstract

Gauntlet proposes actively managing risk parameters for all Aave V2 assets. The targets metrics to improve are risk-adjusted yield for depsitors, capital efficiency for borrowers, and the mitigation of depositor losses. Gauntlet will improve the metrics above without increasing the net insolvent value percentage or the slashing run percentage.

## Motivation

Aave's Risk Framework shows the importance this community puts towards understanding and mitigating risk. Users are exposed to changing market risks at all times. Since publishing the Market Risk Assessment Gauntlet has continue to rerun our simulations. Our platform observes regular changes to the optimal risk parameters. 

## Rationale

See `discussions` for further information.

## Implementation

Current Aave v2 Total $ Borrow = ~$7.09B 

Current Number of Aave v2 Assets = 28

_Gauntlet quarterly service fee formula = log(Number of Assets,10) * Total $ Borrow * 2.5 basis points / AAVE price_
                                        = log(26,10) * $6,000,000,000 * 2.5 basis points / AAVE price ($376)
                                        = 5,645 AAVE
  
This AIP implements two payments to Gauntlet as outlined in the ARC, both denominated in stkAAVE. The stkAAVE is obtained by staking AAVE from the EcosystemReserve. The first payment is implemented as a direct transfer of the stkAAVE to Gauntlet. The second payment makes use of [Sablier](https://docs.sablier.finance/) to implement a streaming vesting payment over the course of half a year. This payment can be revoked by governance using `cancelStream`. Specifically we make use of the following transactions:
  - `transfer` `AAVE` tokens from the EcosystemReserve to the ShortExecutor using the Ecosystem Reserve Controller contract at 0x1E506cbb6721B83B1549fa1558332381Ffa61A93
  - `approve` the `stkAAVE` token to stake the `AAVE` we transferred
  - `stake` the `AAVE` into `stkAAVE`
  - `transfer` the non vested portion directly to the Gauntlet
  - `approve` the `Sablier` contracts to spend the remaining vesting portion of the `stkAAVE`
  - `createStream` on the `Sablier` contract, with the Gauntlet set as the beneficiary, to stream the vesting portion of `stkAAVE` over six months              


Exact calldata and target addresses can be viewed in the transaction which created this proposal.


## Copyright

Copyright and related rights waived via [CC0](https://creativecommons.org/publicdomain/zero/1.0/).

Discussion: 

# Dynamic Risk Parameters

# Add BarnBridge (BOND) to Aave

AIP-23

__Author(s): Anjan Vinod (ParaFi Capital)__



## Simple Summary

We are proposing to add BarnBridge (BOND) to Aave as collateral.

## Abstract

BarnBridge is building a suite of applications that allows users to mitigate risk across various use cases throughout DeFi. These applications rely on differentiated user profiles, referred to as tranches, in order to create markets for risks such as interest rate fluctuations and asset price volatility. Currently, SMART Yield on Ethereum mainnet has some $290M in TVL, while SMART Exposure and SMART Alpha are slated for Q3 of 2021. The BOND token is used to govern the BarnBridge DAO and allocate protocol resources.

## Motivation

BarnBridge is one of a handful of DAOs noted for its sizable allocation of its own native asset (see: open-orgs.info). It currently holds over 30% of the total BOND supply.

Adding BOND to Aave would provide a mechanism through which the DAO could finance growth, decreasing the need for excessive token distributions. Example use cases include: funding projects building on top of BarnBridge applications, paying salaries to key protocol participants, and hosting bug bounties that earn yield until paid out.

BarnBridge earns fee revenues from both deposits of underlying assets and redemptions of derivative assets. By adding BOND as collateral, the DAO and individual BOND holders can borrow against their position, increasing stablecoin demand and utilization on Aave v2. Additionally, BOND holders can lend out their position for a yield on Aave v2. Given BarnBridge’s direct role as an Aave liquidity provider, the addition of BOND to Aave v2 creates more synergies between Aave and BOND holders.

To start, it may make sense for BOND to have a conservative LTV and liquidation threshold which can be fine tuned further down the line.

## Specification

1. What is the link between the author of the AIP and the Asset?
  
  - Seed investor in BarnBridge

2. Provide a brief high-level overview of the project and the token
  
  - BarnBridge is a risk tokenizing protocol. It aims to reduce the risks associated with DeFi, such as inflation risk, market price risk, and cash-flow volatility   risk. By letting users select a risk profile, BarnBridge can redistribute risk via tokenized, liquid tranches. BarnBridge does this with its SMART Yield, SMART   Exposure, and SMART Alpha products, all of which address a specific DeFi risk category.

  - BOND token is a governance token that powers the BarnBridge DAO protocol. BOND is an ERC-20 token. Token holders have the ability to govern the network by       staking their holdings in return for the right to participate in on-chain voting and make decisions on the protocol development.

  - BOND total supply: 10,000,000 (minting function is disabled).
  - Token contract address: [`0x0391D2021f89DC339F60Fff84546EA23E337750f`](https://etherscan.io/address/0x0391D2021f89DC339F60Fff84546EA23E337750f)

3. Explain positioning of token in the Aave ecosystem. Why would it be a good borrow or collateral asset?
  
  - By adding BOND as collateral, the DAO and individual BOND holders can borrow against their position, increasing stablecoin demand and utilization on Aave v2. Additionally, BOND holders can lend out their position for a yield on Aave v2. Given BarnBridge’s direct role as an Aave liquidity provider, the addition of BOND to Aave v2 creates more synergies between Aave and BOND holders. BarnBridge currently provides ~$180M in liquidity to Aave v2 and will be launching a similar integration on Polygon in July.

4. Provide a brief history of the project and the different components: DAO (is it live?), products (are the live?). How did it overcome some of the challenges it faced?
  
  - BarnBridge was founded in September 2020. Since that time, BarnBridge succeed in launching the BarnBridge DAO and delivering a SMART Yield product which currently holds $280M+ in TVL with $178M providing to Aave. With the upcoming SMART Yield and SMART Exposure launch on Polygon, followed by the product we call SMART Secret and SMART Alpha (later) BarnBridge will be a full-established protocol with plenty of products and potentially with 1B+ in TVL after all our products launch.

5. How is the asset currently used?
  
  - BOND token is currently used for:

     - Staking in BarnBridge DAO to get exposure to voting rights in the DAO.
     - Liquidity providing on Uniswap, Sushiswap, and Bancor.
     - Lending on Cream finance.

6. Emission schedule
  
  ![BarnBridge BOND emission schedule](../assets/AIP-23/emission.png)

7. Token & protocol permissions and upgradeability
  
  - Protocol is upgraded by the BarnBridge DAO.  We used the Diamond Standard on a couple parts of the protocol so we could do seamless upgrades.  A users token "power" determines their vote weight and control they have in the DAO.

8. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)
  
  - Market cap: $96M
  - 24h Volume: $5.7M
  - Volatility: high
  - Exchanges: Coinbase, Uniswap, Bancor, Gemini

9. Social channels data (Size of communities, activity on Github)
  
  - Twitter: 19.4K
  - Discord: 6.2K
  - Medium: 4.1K

10. Contracts date of deployments, number of transactions, number of holders for tokens
  
  - Transactions: 116K
  - Token holders: 6.3k

## Rationale

BarnBridge will continue to grow as a distributor of Aave v2 stablecoin markets as its SMART Yield integration gains further traction. There are currently ~$180M worth of stablecoins deposited into Aave v2 through SMART Yield. This liquidity is provided without any expectation of being used, meaning BarnBridge is a pure liquidity provider for Aave. BarnBridge is also actively building an integration with Aave’s Polygon market. Future BarnBridge products, including SMART Alpha senior tranches for assets like wBTC and ETH, stand to provide Aave with relatively safer collateral given their ability to mitigate price drawdowns. 

## Test Cases

Test cases for an implementation are mandatory for AIPs but can be included with the implementation.

## Implementation

### Contracts

- Interest bearing aBOND address: [`0x170375B4aD477133a36B4961D9bcA6D5BF9C8389`](https://etherscan.io/address/0x170375B4aD477133a36B4961D9bcA6D5BF9C8389)
- Variable Debt variableDebtBOND address: [`0x21D0366D1D678fCf276954b7D651B9dfeE104D82`](https://etherscan.io/address/0x21D0366D1D678fCf276954b7D651B9dfeE104D82)
- Stable Debt stableDebtBOND address: [`0xb98EF546D1057f9750511FE16cBCC7Eb0FB6451F`](https://etherscan.io/address/0xb98EF546D1057f9750511FE16cBCC7Eb0FB6451F)
- Strategy Implementation for BOND address: [`0x273358d06Ca3862bf3C0691d1C8B4B4d3E906458`](https://etherscan.io/address/0x273358d06Ca3862bf3C0691d1C8B4B4d3E906458)

### Price oracle

The BOND price oracle will be served via [ChainLink](https://chain.link/), which includes the [BOND/ETH](https://docs.chain.link/docs/ethereum-addresses) feed, [here](https://etherscan.io/address/0xdd22A54e05410D8d1007c38b5c7A3eD74b855281).

### Interest model

- LTV 25%
- Liquidation Threshold 35%
- Liquidation Bonus 15%
- Reserve Factor 35%

Interest Rate Model

- UOptimal 45%

Variable:

- R_0 0%
- R_s1 7%
- R_s2 300%

Stable:

- R_s1 10%
- R_s2 300%


![BarnBridge BOND Aave interest rates](../assets/AIP-23/rate.png)

## References

- *Website*: https://www.BarnBridge.com
- *DAPP*: https://app.barnbridge.com/
- *Whitepaper*: https://github.com/BarnBridge/BarnBridge-Whitepaper
- *Project Management Portal*: https://github.com/BarnBridge/BarnBridge-PM
- *Youtube*: https://www.youtube.com/c/BarnBridge
- *Twitter*: https://twitter.com/Barn_Bridge
- *BOND token contract*: https://etherscan.io/address/0x0391D2021f89DC339F60Fff84546EA23E337750f

## Copyright

Copyright and related rights waived via [CC0](https://creativecommons.org/publicdomain/zero/1.0/).


Discussion: https://governance.aave.com/t/proposal-add-support-for-bond-barnbridge/4486

# Add BarnBridge (BOND) to Aave

# Q2 Dynamic Risk Parameters

AIP-46

__Author(s): Tarun Chitra, Watson Fu, Jonathan Reem, Nick Cannon, Paul Lei__

## Simple Summary 
A proposal to renew Gauntlet's [Dynamic Risk Parameters](https://governance.aave.com/t/proposal-dynamic-risk-parameters/4854) engagement for continuous market risk management to optimize yield, capital efficiency, and mitigate depositor losses.


## Background
Since mid-August, Gauntlet has provided [Dynamic Risk Parameters](https://governance.aave.com/t/proposal-dynamic-risk-parameters/4854) and delivered on all areas outlined in the original proposal. Gauntlet has published 7 ARCs, Snapshots, and AIPs on parameter recommendations (102 parameter updates across 21 assets), 2 [Market](https://governance.aave.com/t/market-risk-monthly-updates-and-review/5572) [Risk](https://governance.aave.com/t/market-risk-monthly-updates-and-review-october-2021/5887) Monthly reviews, new weekly risk updates in [Aave News](https://aavenews.substack.com/p/aave-news-risk-section-new-grantees), and launched the Aave [Risk Dashboard](https://gov.gauntlet.network/aave). Gauntlet has invested heavily in the proper infrastructure including ETL data pipelines, agent-based simulation infrastructure, and financial models that make possible the parameter recommendations and front-end [Risk Dashboard](https://gov.gauntlet.network/aave).

The below will outline how Gauntlet has been able to create value for the Aave ecosystem. We also describe specific ways the Gauntlet Platform will make an even more significant impact moving forward.

## Impact of the Gauntlet Platform

How the Gauntlet Platform drives value to Lenders, Borrowers, and Aave stakeholders:   

* Mitigating losses from liquidations and insolvencies - $6.7M of annual value
* Increase capital efficiency and yield for users - $16.4M of annual value
* Safely position Aave for sustainable growth 


### Mitigating losses from liquidations and insolvencies - $6.7M of annual value


Gauntlet's parameter recommendations save Borrowers' collateral lost to liquidators by safely lowering liquidation bonuses. When Borrowers' collateral are liquidated, they lose an extra portion of their collateral to liquidators. This bonus incentivizes liquidators but often can be reduced without sacrificing protocol risk.

From our first liquidation bonus updates (2021-08-27) to present Gauntlet has saved Aave V2 protocol users $218,141 in liquidations due to lower liquidation bonuses, which equates to **$1,447,663** on an annualized basis. It is important to note that this time frame experienced relatively low levels of asset volatility. Higher levels of asset volatility would lead to more liquidations, and more savings realized. 



Additionally, Gauntlet has reduced the total capital at risk due to insolvencies and liquidations when markets are under duress (Value at Risk). Gauntlet's parameter recommendations reduce VaR, following the community's [risk tolerance](https://snapshot.org/#/aave.eth/proposal/QmT9T4Rfnh1Z2HYmMPXvtFotMK2vSxiXK8dKStg2b6n4gi), which protects Borrowers, as less capital is expected to be lost during market shocks. In addition, lower VaR accrues value to Aave token holders, as insolvencies lead to payouts from Aave's Safety Module.

On average, Gauntlet’s recommendations have shown a **14% reduction in VaR**. Our simulations observe an average of 0.48% of Aave V2's TVL being at risk on any given day. In the scenario where volatility reaches similar levels as Black Thursday, we expect to save Aave users an average of **$5,258,511** in liquidations and insolvencies.

In the future, should the community assign a `riskAdmin` role, Gauntlet can achieve more precise adjustments and streamlined risk management. Compared to the time-intensive ARC, Snapshot, and AIP processes, our response time during catastrophic market shocks would return tangible benefits. One example of this is adjusting liquidation bonuses swiftly to prevent liquidation cascades.

### Increasing capital efficiency and yield for users - $16.4M of annual value
 
 
One of the core functions of the Gauntlet Platform is increasing capital efficiency for borrowers while controlling insolvency risk. Gauntlet's recommendations have led to higher borrow demand following lower collateralization ratios. On Sept. 4th, 6.1% of users had collateralization ratios below `2.00`. As of Oct. 21st, the number of accounts has grown by roughly 14%, and 8.9% of new accounts have collateralization ratios below `2.00`. **New positions opened after Gauntlet's parameter recommendations have higher borrow demand**, as seen in the histogram below.

![](https://i.imgur.com/rSbMyaa.png)
<p style="text-align: center">Histogram of new accounts since 09/04 by Collateralization Ratio and Borrow Value</p>


From another angle, [Borrow Usage](https://governance.aave.com/t/proposal-dynamic-risk-parameters/4854#:~:text=the%20Gauntlet%20Recommendations.-,Borrow%20Usage,-provides%20information%20about) is an additional measure of capital efficiency and signifies how aggressively depositors of collateral borrow against their supply. Since Gauntlet's parameter recommendations, we have seen a **1.1 percentage points increase in borrow usage.** 

Also, corresponding to these updates, an increase in yield for depositors has been realized. Depositor income the month before our parameter updates was $24.7M. The average monthly yield after Gauntlet's parameter updates was $37.7M. Increased capital efficiency and the resulting benefit to depositors should, at least in part, be attributed to risk parameter optimizations. Given the increase in borrow usage for the same amount of assets lent, Depositors will earn an estimated **$5.6M additional yield**.

Let's look at an illustrative example of how a fast path, via `riskAdmin`, to parameter changes can facilitate opportunistically increasing LTVs and magnify impact. Say borrowers on AAVE have at least a 2% return on their borrowed capital above borrow cost. If we assume 50% of the year is low volatility, Gauntlet raises LTVs by an average of 5% during low volatility periods, and ~$20B of collateral on Aave, then we can conservatively estimate **$10M of value to Borrowers.** Those new borrows would also generate over $800K worth of additional interest income for depositors. 



### Safely position Aave for sustainable growth

Gauntlet's risk management empowers Aave not only to optimize existing assets but immediately support new assets. We have already made parameter updates for the newly added DPI in [AIP-43](https://app.aave.com/#/governance/43-QmZb3yBeYJv1ruGWfY1h7XNcya82Q6Jqs4Q7b5dDMwuN3U). 

Gauntlet is also closely monitoring the growth and stability of new assets FEI and FRAX. Should market conditions allow for safely turning on collateral, which initial simulations suggest can be done, we will seek community consensus to do so. Doing so could unlock $80M in collateral today and scaling proportionally, using the DAI borrowed on Aave to that in circulation, tens of millions more. 

Safely supporting new collateral helps make the DAO sustainable beyond the Ecosystem Reserve.

## Risk Dashboard

Gauntlet has launched a [Risk Dashboard](https://gov.gauntlet.network/aave) for the community to provide key insights into risk and capital efficiency. The dashboard focuses on both the system-level risk in Aave V2 and the market risk on an individual collateral level. Our goal is to help convey our methodology to the community and provide visibility into specific parameter recommendations. The dashboard will continue to be updated daily.


![](https://i.imgur.com/X9Z8t49.png)


## Expectations


Gauntlet will continue to deliver on the same risk parameters and communications plan outlined in the original [Proposal](https://governance.aave.com/t/proposal-dynamic-risk-parameters/4854/5#:~:text=%24100k-,Expectations,-Risk%20Parameter%20Updates) while expanding the scope to include the two changes below:

* Configuring Reserve Factors 
* Supporting Borrow Caps when the protocol is upgraded


## Updated Cost

Gauntlet's standard liquidity protocol fee model has been updated universally since the original proposal. The updated formula to calculate the service fee still has four components:
1. An asset multiplier to track risk management complexity 
2. **[Updated] A proxy for capital efficiency**
3. **[Updated] A marginal base fee**
4. **[Updated] 30-Day VWAP (Volume Weighted Average Price) of AAVE**


Component #1 remains the same. The asset multiplier calculation is log(Number of Assets, 10)*. New assets on the protocol add complexity to risk management. 

Components #2, #3, and #4 have been updated. Total Borrow remains the best proxy for capital efficiency and is now calculated as the 30-day average and rounded down to the nearest $1B. The base fee now takes marginal reductions to be more scalable for DAOs. Lastly, the requested AAVE denomination has been updated to protect the DAO and Gauntlet from short-term price fluctuations.


| Marginal Base Fee | Total Borrow |
| ----------------- | ------------ |
| 10 bps            | $0 - $5B     |
|           5 bps   | $6B - $10B   |
|         2.5 bps   | $11B - $15B  |
| 1.25 bps          | $16B - $20B  |




![](https://i.imgur.com/BWG7RI4.png)

<sup>*Gauntlet quarterly service fee denominated in AAVE (table above calculated at $345)</sup>

---


## Conclusion

In just a few months, the Gauntlet Platform delivered significant value to the Aave ecosystem, and importantly, the future impact will be even greater. Through rigorous quantitative analysis and agent-based simulation frameworks derived from industries including algorithmic trading and autonomous vehicles, the Gauntlet Platform empowers Aave to optimize yield, capital efficiency, and mitigate depositor losses. Gauntlet currently provides parameter recommendations covering over $49B of assets. Managing risk for numerous protocols allows our data scientists and engineers to improve our models ahead of realization events occurring on Aave. As Aave continues to scale, it is crucial to adapt and translate complexity into trade-offs to support community decisions. 


## Implementation 

* Aave v2 30-day average Total Borrow: \$6.74B
* 30-Day AAVE VWAP: \$345.231184773
* Current Number of Aave v2 Assets = 31

The quarterly service fee formula using the inputs above equals 5940 AAVE.

  
This AIP implements one streaming payment to Gauntlet denominated in stkAAVE. The stkAAVE is obtained by staking AAVE from the EcosystemReserve. The payment makes use of [Sablier](https://docs.sablier.finance/) to implement a streaming vesting payment over the course of one calendar quarter. This payment can be revoked by governance using `cancelStream`. Specifically we make use of the following transactions:
  - `transfer` `AAVE` tokens from the EcosystemReserve to the ShortExecutor using the Ecosystem Reserve Controller contract at 0x1E506cbb6721B83B1549fa1558332381Ffa61A93
  - `approve` the `stkAAVE` token to stake the `AAVE` we transferred
  - `stake` the `AAVE` into `stkAAVE`
  - `approve` the `Sablier` contracts to spend the remaining vesting portion of the `stkAAVE`
  - `createStream` on the `Sablier` contract, with the Gauntlet set as the beneficiary, to stream the `stkAAVE`


Exact calldata and target addresses can be viewed in the transaction which created this proposal.

## Copyright

Copyright and related rights waived via [CC0](https://creativecommons.org/publicdomain/zero/1.0/).


Discussion: https://governance.aave.com/t/arc-q2-dynamic-risk-parameters/5955

# Q2 Dynamic Risk Parameters

Aave is an Open Source and Non-Custodial protocol to earn interest on deposits and borrow assets

Ethereum	$10.09b
Arbitrum	$693.42m
Polygon	$403.1m
Avalanche	$254.99m
Optimism	$150.31m
Gnosis	$60.94m
Base	$59.08m
Scroll	$42.75m
BSC	$42.34m
Metis	$18.33m
Fantom	$61,683
Harmony	$0

Include in TVL (optional)
Borrowed	$7.36b
Staking	$223.78m
Pool2	$3,401,437

Market Cap	$1.27b
	$85.5
	$1.37b
	$152.2m
Staked	$223.78m
(17.67% of mcap)
Borrowed	$7.36b
	$411.76m
	$70.13m
	$56m
	$48.7m

	$6,276,540

AAVE (AAVE)

Protocol Information

Latest from DL News

Token Information

Methodology