Chaos Labs - Risk Parameter Updates - 12/19/23

[chaoslabs]

Summary

1. BUSD
   1. Reduce CF to 0.30
2. XVS (Core Pool)
   1. Supply Cap - increase to 1,750,000

Analysis

BUSD

Following the deprecation plan for BUSD and our previous recommendation below, we recommend further reducing the CF for BUSD, to 30% in this proposal.

@chaoslabs

Over the past months, the community has approved several proposals in its efforts to wind down the market, in light of Paxos stopping to support BUSD in February 2024. The efforts to date included:

• Freezing new supply and borrow by reducing supply and borrow caps to 0.
• Increasing BUSD Reserve Factor to 100%
• Pause MINT - complementary to setting supply caps to 0
• Pausing BORROW - complementary to setting borrow caps to 0
• Pausing ENTER_MARKET - will not allow users to start using BUSD as collateral. Users who have already enabled BUSD as collateral will not be affected by this update.
• Setting XVS rewards in the BUSD market to 0.
• Adjusting BUSD IR curves
• Implementing the “Forced Liquidation” mechanism which was designed to liquidate accounts holding BUSD borrow positions, thereby returning BUSD to the Venus Core Pool and allowing users to redeem their supplied BUSD.
• Repayment of BUSD insolvent accounts

In light of Binance’s announcement that it will cease to support BUSD and in our continued efforts of deprecating the market on Venus, we recommend gradually winding the Collateral Factor for BUSD to 0.

Our initial step involves reducing the Collateral Factor by 10% to 0.72. This approach aims to minimize the number of accounts subject to liquidation. Currently, this reduction would result in 45 accounts affected with a total liquidation value of approximately $28.2K.

We propose executing this change only after the completion of the final shortfall repayment, allowing users to redeem their BUSD supply. To avert potential liquidations, we advise those utilizing BUSD as collateral to repay their borrows and redeem BUSD holdings before the implementation of this proposal.

Following the initial CF reduction, we plan to recommend more aggressive CF reductions to expedite the market deprecation. We urge users to proactively wind down their BUSD collateralized positions ahead of time to avoid liquidations should the community decide to adopt this approach.

Currently, this reduction would result in 296 accounts affected with a total liquidation value of approximately $400K.

The list of accounts at risk of liquidation can be found here.

Following this CF reduction, we plan to recommend a final CF reduction, bringing it down to 0. to finalize the market deprecation. We urge users to proactively wind down their BUSD collateralized positions ahead of time to avoid liquidations should the community decide to adopt this approach.

XVS

The supply cap for XVS in Venus Core Pool is at full utilization.

Given the current XVS on-chain liquidity and protocol usage, we recommend a modest increase of the caps, from 1.5M to 1.75M.

Simulations

Utilizing our supply cap methodology, we’ve conducted stress tests to evaluate the impact of raising the cap on Value at Risk (VaR). Below are the results from both severe and moderate stress-test scenarios.

Severe Scenario

In our severe stress-test scenario, the simulated VaR following an increase of the supply cap by 1.5X increases by nearly $100,000.

Moderate Scenario

In our moderate stress-test scenario, modeling a ~35% drop in the price of XVS, the simulated VaR following an increase of the supply cap by 1.5X increases by nearly $45,000.

[wonderomg]

Perfect! Yes that’s what we need. Step by step solution for BUSD and i also like the part about supply increase for XVS! Good one.

[crazyman61]

yes we need to increase supply cap of xvs token. because xvs investors want to supply their token but there is no enough space. appreciate for this proposal.