# Gauntlet's BASE Recommendations (2023-11-07)

# Simple Summary

### Risk Parameters

A proposal to adjust 3 risk parameters:

| Risk Parameter | Current Value | Recommended Value |
| ---------------------- | ------------- | ----------------- |
| WETH Collateral Factor | 80% | 81% |
| cbETH Collateral Factor | 75% | 76% |
| USDC Collateral Factor | 82% | 83% |

---

# Rationale:

## Risk Parameters
Our recommendations have an estimated VaR at $0 and remains unchanged. LaR increased to $647k from $627k with our current recommendations. Based on simulation results, Gauntlet recommends increasing the collateral factors for WETH, cbETH, and USDC in order to improve capital efficiency.

#### USDC Positions
Top 3 USDC collateral positions are recursive.

#### WETH Positions
Top 2 WETH collateral positions are recursive.

#### cbETH Positions
Largest supplier of cbETH is utilizing the cbETH as collateral to borrow ETH.

#### BASE Liquidity
| Asset | Borrow Cap | Supply Cap | Borrow Cap Usage | Supply Cap Usage | DEX 25pct Slippage Token |
|:--------|:-------------|:-------------|:-------------------|:-------------------|:---------------------|
| WETH | 6,300 | 10,500 | 31.59% | 38.32% | 3,753 |
| USDbC | 4,000,000 | 5,000,000 | 22.07% | 34.02% | 3,046,369 |
| DAI | 5,000,000 | 10,000,000 | 33.71% | 40.55% | 2,766,369 |
| USDC | 5,000,000 | 10,000,000 | 67.16% | 42.41% | 3,068,939 |
| cbETH | 1,000 | 4,000 | 31.05% | 57.72% | 2,434 |

#### BASE Circulating Tokens and Supply Cap
| Assets | Circulating Supply | Supply Cap | Supply Cap ($) | Supply Cap / Circulating Supply |
| ------ | ------------------ | ---------- | -------------- | ------------------------------- |
| WETH | 36,746 | 10,500 | $18,921,000 | 28.57% |
| USDbC | 80,702,780 | 10,000,000 | $10,000,000 | 12.39% |
| DAI | 10,952,120 | 10,000,000 | $10,000,000 | 91.31% |
| cbETH | 18,491 | 4,000 | $7,596,000 | 21.63% |
| USDC | 154,747,505 | 10,000,000 | $10,000,000 | 6.46% |

Current Supply Cap of DAI represents 91% of circulating supply. At this time, the supply of DAI has decreased this past month by 37%. As a precaution of the decrease of on-chain circulating supply of DAI, we recommend to decrease supply cap to 7.5M DAI. This supply cap decrease should not impact capital efficiency and UX.
### DAI Circulating Supply on BASE
Link to the [chart](https://l2beat.com/scaling/projects/base)

## IR Parameters
When Gauntlet analyzes interest rate parameters, we prioritize two main objectives:

- Mitigating the risk of reaching 100% utilization in a pool.
- Maximizing the growth of the protocol reserve to provide coverage for potential insolvencies or future expenses.

For this recommendation, Gauntlet advises against making any adjustments to the interest rate curves, as they are already optimized to achieve these objectives.
### Moonwell BASE Projected Revenue KPIs

### Projected Annual Reserves

## Methodology
This set of parameter updates seeks 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 on a daily basis (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet’s simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. As such, the input metrics we show below can help understand why some of the param recs have been made but should not be taken as the only reason for recommendation. To learn more about our methodologies, please see the Helpful Links section at the bottom.

# Supporting Data

The below figures show trends on key market statistics regarding borrows and utilization that we will continue to monitor:

#### Top 10 Borrowers’ Aggregate Positions & Borrow Usages

Top 3 debt positions on Base market are recursive.
#### Top 10 Borrowers’ Entire Supply

<sub> [Link](https://risk.gauntlet.network/protocols/moonwell/markets/base?fullscreen=market_health_latest_top_borrowers_supply) to Chart

#### Top 10 Borrowers’ Entire Borrows

<sub> [Link](https://risk.gauntlet.network/protocols/moonwell/markets/base?fullscreen=market_health_latest_top_borrowers_supply) to Chart

#### Utilization Rate of Assets - Timeseries
<sub> [Link](https://risk.gauntlet.network/protocols/moonwell/markets/base?fullscreen=market_health_timeseries_asset_utilization) to Chart.

#### Borrow Cap Utilization

#### Supply Cap Utilization

#### Balances by User Strategies

LST Yield Farming sits at 11.668% for all outstanding debt positions with 62% of debt positions being recursive.

#### Circulating Token USDC vs USDbC Supply
Gauntlet continues to monitor liquidity and circulating supply USDbC. USDbC circulating supply has decrease by 17% since early in October but there is still strong liquidity and adoption of USDbC within the BASE ecosystem.

### Stablecoin 25% Slippage on BASE

### Non-Stablecoin 25% Slippage on BASE


#### Collateral Usage and Collateralization Ratios
WETH has the highest collateral usage with largest collateralization ratio for the BASE market. DAI's collateral usage is only at $1.46M with borrowing power of ~$3.5M.

#### DAI Positions
The largest supplier of DAI ([0xb91107](https://debank.com/profile/0xb91107e0b01b0cd2167abf3a0c1ed14e9c58cca1a)) does not utilize DAI as collateral. This position has a borrowing power of $1.74M. DAI has the lowest borrow [usage](https://risk.gauntlet.network/protocols/moonwell/markets/base/assets) on the protocol.

## Risk Dashboard
The community should use [Gauntlet’s Moonwell Base Risk Dashboard](https://risk.gauntlet.network/protocols/moonwell/markets/base) to better understand the updated parameter suggestions and general market risk in Moonwell BASE.


## Quick Links

*Please click below to learn about our methodologies:*

[Gauntlet Parameter Recommendation Methodology](https://medium.com/gauntlet-networks/gauntlets-parameter-recommendation-methodology-8591478a0c1c)
[Gauntlet Model Methodology](https://medium.com/gauntlet-networks/gauntlets-model-methodology-ea150ff0bafd)

*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.*