Risk Parameter Updates 2023-04-25

[jakeaujus]

Recommendations From Gauntlet:

Summary

• TRX:
  • Increase borrow cap to 10m tokens from 9m
  • Increase supply cap to 12m tokens from 11m
  • Increase CF to 0.50 from 0.475
• SXP:
  • Wait for SXP suppliers to continue unwinding their positions
• XVS:
  • Continue to monitor the price of XVS
• CAKE:
  • Monitor CAKE market developments

Rationale

For the listed assets, Gauntlet recommends the following:

• TRX:
  • To encourage continued usage of TRX instead of TRXOLD, we recommend raising borrow and supply caps to 10,000,000 and 12,000,000 respectively, as well as raising the collateral factor to 0.50. With TRX market data accumulating, our models indicate that the liquidity of TRX warrants borrow and supply cap increases that introduce minimal additional risk to Venus. We note that TRX’s 2% depth across all CEX and DEX sources is $25m (~350m tokens). The top 3 wallets on Binance chain hold ~263m TRX, and the top 5 wallets hold ~273m TRX. We calculate these increases in borrow/supply caps will contribute about $3,053 of additional potential reserve fee revenue annually to Venus. We also assess the risk of price manipulation with respect to collateral factor, borrow cap, and supply cap recommendations. Increasing the collateral factor from 0.475 to 0.50 continues to incentivize utilize TRX, without introducing additional meaningful risk.
• SXP:
  • While SXP is being deprecated from Venus, the two largest suppliers of SXP (addresses ending 34cfb4f1 and 068e9790) have lowered both their SXP (left charts) and their respective borrows (right charts). See the charts below (y-axis represents token amounts).

- At SXP’s current price, the users are safe from being liquidated until SXP declines by at least 22%. If Venus lowered SXP’s CF now to 10%, the users would be close to being liquidated. Since the users are in the process of winding down their positions, we recommend allowing them more time before reducing SXP’s CF further.

• XVS:
  • After XVS spiked on April 9, 2023, the community voted to lower XVS’s CF to 0.55 from 0.60 to discourage users from utilizing their increased borrowing power, which could have negatively affected users if XVS quickly declined thereafter. Some users did indeed increase their borrow usage, including the largest XVS supplier (address ending …5567078e), who had shown similar behavior previously in response to rises in XVS’s price (like when XVS rose 67.8% this year from Jan 1 through Feb 20). XVS remains at somewhat elevated levels (~$6.15) but has been declining since April 14. The top 20 XVS suppliers now have a weighted average borrow usage of ~57%.
  • The supply balance of XVS is currently at 99.9% of its supply cap of 1m, but given that the price of XVS has been declining since April 14, we recommend no changes and Gauntlet will continue to monitor before making any parameter changes. If XVS’s price stabilizes over a period of about 2 weeks, we would consider re-adjusting parameters for XVS.
• CAKE:
  • We’d like to note some recent developments with CAKE on Venus. First, a single user (account ending ...b5e1061b) supplied ~$6.3m of CAKE on April 22, 2023, borrowing around $3.8m in BNB. On the same day, another user (account ending ...79ddfeaa) supplied around $2.4m CAKE (no borrows). The supply balance of CAKE on Venus accordingly spiked, peaking at around 95% of the supply cap (7m) on April 22, and sitting at around 90% supply cap usage as of April 24. Notably, CAKE’s price has declined 13.5% to around $2.90 on April 24 as well. Given this recent volatility of CAKE, we do not recommended changing its parameters on Venus at the moment, but we will continue to monitor the situation as it develops.

General Update

Below we provide a broader update on Venus protocol’s risk metrics.

1. Methodology

Gauntlet’s parameter updates seek 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 daily (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, the expected market impact of trades, and liquidator behavior). Gauntlet’s simulations tease out complex relationships between these inputs that cannot be expressed as heuristics. As such, the input metrics we show below can help explain why some of the param recs have been made but should not be taken as the only reason for the recommendation. The individual collateral pages on the Venus Risk Dashboard cover other vital statistics and outputs from our simulations that can help with understanding interesting inputs and results related to our simulations.

For more details, please see Gauntlet’s Parameter Recommendation Methodology and Gauntlet’s Model Methodology.

2. Risk Dashboard

The community should use Gauntlet’s Venus Risk Dashboard to understand better any updated parameter suggestions and general market risk in Venus. 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. We would note that our methodology on borrow/supply caps is currently driven by risk modeling that is independent and additive to our risk simulations shown on the Dashboard.

3. Top Borrowers

The below figures show trends in 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

4. Liquidations

As Gauntlet tracks the state of the market and protocol, the charts below show some of the behavior we have been monitoring to ensure minimal market risk.

• April 4: Liquidations of $74.4k and $59.7k, totaling ~$135k, occurred on April 4. The former liquidation resulted from the borrowed asset, DOGE, experiencing a price spike of ~33% from April 3 to April 4. The latter liquidation, which borrowed ETH, was liquidated due to a 6% increase in ETH price on April 4.
• April 10: A single user liquidation of $104.2k occurred on April 10. This user posted USDT as collateral to borrow WBNB and was liquidated as a result of a 3% increase in the price of WBNB on April 10.
• April 14: Venus saw a total of $474.3k in liquidation volume on April 14. The majority of this total is comprised of three individual user liquidations that borrowed ETH and were liquidated as a result of its 11% price increase on April 14. The three users were liquidated for $47.4k (supplied USDT), $231.7k (supplied BUSD), and $145.1k (supplied BUSD) respectively, totaling $424.5k of the total $474.3k liquidation volume for that day. One other liquidation of $36.1k occurred on April 14 for a user that borrowed BTCB and supplied USDC and was liquidated due to BTCB’s 14% price increase that day.
• April 16: Venus saw a total of $127k in liquidation volume on April 16, mainly comprised of two user liquidations of $64.2k and $52.7k. Both users borrowed ETH and supplied BTC, and were similarly liquidated as a result of ETH’s additional 3% price increase between April 14 and April 16.

We will continue to monitor user and protocol positions and make recommendations as needed. The charts below show the liquidations and repaid borrows of accounts liquidated in the past month.

Liquidations

Repaid Borrows

Next Steps:

• These recommendations will be put up for a VIP vote

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.

[NoOneVII]

Hello, I am a Venus user and XVS holder since day one.
I have been using XVS as Collateral for over 2 years. The number of XVS supplied has remained at the same level for a very long time and has never approached the Supply Cap level.
It’s unfair to Venus’ OG users that you reduced the XVS CF based on the small number of user experiences. Moreover, in this period when our Venus team is trying to bring many new benefits for OG users, the reduction of CF of XVS creates a contrast.

While Supply Cap is already doing its job well and minimizing risk, on behalf of XVS holders, I request you to do a risk assessment again to increase XVS’s CF back to 60%. Thank you

[Bully_bee]

Why is there so much effort in finding reasons and discouraging not to use XVS as collateral. It’s becoming pathetic.

[VenusOG]

Long-term holder here and wanted to chime in. I think it’s a bad idea to continue to lower the CF of XVS coins. With the advent of futures, you can now 20x leverage long on XVS. This is opposed to being able to 2x or less using collateral. The problem isn’t responsible users using their collateral to borrow against, that’s actually very responsible. The irresponsibility is when Binance or a whale takes a very massive short or long position and moves the price in that direction. This is why they said since day 1 they would never allow futures to be in the XVS protocol. But yet, greed has made them rethink this and go against the wishes of all XVS holders.

By continuing to lower the CF of XVS, you are pushing out long-term holders of the protocol who put their XVS in the network to take out loans. There will always be risk in the markets. If you allow someone with BTC to collateralize 80%, and BTC drops 50% in a day, that seems just as bad as a 60% XVS CF.

I think by continuing to reduce the CF of XVS, you are pushing out long-term holders and making them minimize their collateral positions against their liking. As I looked at the liquidations, XVS is one of the least liquidated coins among the larger collateral players. So clearly, the CF being lowered isn’t the issue. You would have to think XVS holders who have been around a while know how to manage their collateral levels, and that’s been proven ever since the dump in May 2021.

I think if you read the chat forums, a lot of longer-term holders are not happy with the continuing monitoring and possible lowering of the XVS CF. I believe you should be increasing it as well as allowing those OG users to have a larger supply cap and allow them to continue managing risk. Remember most orignal XVS holders are gone, so the ones that are here are still here after 2 years of hell. Taking something away from them isnt the best option after all this time.

[NoOneVII]

I absolutely agree and demand that this wrong decision be reversed and corrected immediately. All our old users in Telegram groups are unhappy and we are losing holders because of this. Please take action and bring it back to 60%

[Justno]

Completely agree with this !

With the arrival of 20x futures, a serious security vulnerability has occurred on behalf of those who supply xvs tokens.

Some people who are hostile to venus protocol and xvs token should not be allowed to hurt the xvs price and the investors supplying the xvs token by simply opening large amount of 20x short trades on futures !

Something needs to be done to lower the liquidation by raising the xvs collateral.

[Bully_bee]

Lowering CF on XVS was a very bad move. We believe in Venus even in the bad days. Why are the bad always winning. Stop rewarding crooks and it is time that hit and run on the protokol is bot rewarded anymore.

And most important start taking ownership of the protocol like a man and stop it being treated like the adopted child by Binance. It aint chewing gum.

[crazyman61]

decreasing CF for xvs is making bad price actions. there is only 1 million supply cap and we are believer, who supply and borrow stable coins and buy more xvs. vault stakers is earning passive income, but xvs suppliers taking nothing. and also gauntlet recommend to decrease cf. ASAP to inrease min %70 CF for xvs. if not xvs price effect very bad.

[Emrarss]

60% was the usual level for XVS holders. I don’t think it’s the right time to lower the limits. It should be rearranged.

[Dayo63]

Venüsprotcol
XVS

[mehmeterkcn]

I completely agree. Venus is a borrowing and lending platform. Particularly, raising the Collateral Factor (CF) for the XVS token could encourage XVS holders to participate more in the platform’s governance and contribute to its long-term growth.

A higher CF could incentivize XVS holders to borrow more and transact more on the platform. This could help increase the platform’s volume and collect more transaction fees. Additionally, a higher CF could also help increase the liquidity of the XVS token and provide more flexibility to XVS holders.

Therefore, I believe that you should carefully evaluate the necessary risk parameters and how they could impact the platform’s long-term growth, and consider reverting the CF for the XVS token back to its previous level or even raising it.

[Deniz]

Perfectly explained. I agree with every word !

[jakeaujus]

Hello everyone, we really appreciate the engagement and focus on Venus’ long-term growth!

The primary motivation for lowering XVS’s collateral factor was to protect users and the protocol by preventing liquidations if users ramped up their borrowing in response to XVS’s price spike on April 9. The lower CF was meant to be a temporary measure to mitigate this risk, and we noted that we would reconsider the CF once the price of XVS stabilized for 2 weeks. While it’s true that any token can experience price volatility, we were specifically concerned due to 1) the extreme spike in XVS’s price and 2) the prior behavior of XVS suppliers in response to previous XVS price increases. For instance, the largest XVS supplier (address ending …5567078e) tends to increase their borrows as the price of XVS rises (like when XVS rose 67.8% this year from Jan 1 through Feb 20) and tends to utilize around 90+% of their borrow capacity. If XVS’s CF were kept at 60% and the user increased their borrow usage to 90+%, a price decline of 8.0% in XVS from the peak would have caused that user to be liquidatable (XVS has declined 46.5% since the peak of $8.93 on April 9). As Gauntlet also focuses on long-term growth and sustainability, protecting users from losing funds in the short term was proposed so that we could safely increase CF when the market permitted.

That said, our upcoming parameter recommendations will reflect current market conditions and we hear the communities feedback. We anticipate recommending raising the CF and supply cap of XVS and as the price has stabilized.

[NoOneVII]

Thank you for your comment and for considering the community’s views🙏 Looking forward to your new Risk Analysis document

[Mahmud34]

It is necessary to increase the collateral above 70 percent