Gauntlet Market Risk Update for Venus (3/12/2023)
At this moment, we do not recommend pausing the Venus market since our analysis indicates relatively low insolvency risk given USDC collateral factors and usage. If the USDC price falls below $0.87, Gauntlet recommends that Venus pauses USDC new borrowing and supplying, and pausing liquidations of accounts supplying USDC in order to prevent significant insolvent liquidations.
Overview
USDC recently broke from its $1 peg and prices dropped as low as $0.88. When this happened, liquidations began to fail on multiple markets. Liquidity for USDC is still far below normal levels. We worked with the the Venus core team to suggest next steps.
Key Metrics
Key Risks
1 - Price dip and recovery
If the price dips and recovers, liquidations will only process on the way up. Rational liquidators will not take on USDC collateral until they are confident they can unload it. This is exactly what we saw play out in the last dip on Friday on other protocols - you only get adverse liquidations
Many Defi participants expect USDC to eventually recover to close to a dollar. If USDC price drops below 0.87, adverse liquidations could exacerbate insolvency in markets like Venus. If we see the price of USDC drop to 0.87 cents again, we recommend pausing USDC new borrowing and suppying, and pausing liquidations of accounts supplying USDC in order to prevent significant insolvent liquidations
2 - Price stabilizes at a lower level
In the case that the price falls and stabilizes well below a dollar, we do not expect liquidations to process normally given current liquidity levels.
Current Gauntlet Recommendations
Current Initiatives
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*This is the current best guess for when we will get clarity on USDC value - we will monitor and provide recommendations as necessary beyond that date