to Aave’s governance forum, the trading freeze follows an analysis from decentralized finance risk management company Gauntlet Network, recommending that all v2 and v3 markets should be temporarily paused.
“Setting LTV to 0 definitely helps everywhere, but on the Avalanche v3 Pool, given that cross-chain infrastructure doesn’t cover Avalanche, the Aave Guardian can act immediately. Setting LTV to 0 in practise discounts the “borrowing power” of the asset, without affecting the HF of any user position,” noted one participant in the forum discussion.
LTV is an important metric determining how much credit you can secure using crypto as collateral. Expressed as a percentage, the ratio is calculated by dividing the amount of credit borrowed by the value of the collateral. Gauntlet’s risk analysis examined the number of insolvencies that might occur under different scenarios, considering that the price of USDC stabilizes, recovers or declines significantly:
“V3 emode assumes correlation of stablecoin assets, but at this time, those correlations have diverged. The risk has increased given that the liquidation bonus is only 1% for USDC on emode. To account for these assumptions that no longer remain true, we recommend pausing the markets. [...] At current prices, insolvencies are ~550k. These can change depending on the price trajectory and further depegs.
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Source: Cointelegraph - 🏆 562. / 51 Read more »