# MIP-B12:Gauntlet's BASE Recommendations (2024-01-02)

# Simple Summary

### Risk Parameters

A proposal to adjust 5 risk parameters:

| Risk Parameter | Current Value | Recommended Value |
| ---------------------- | ------------- | ----------------- |
| wstETH Collateral Factor | 76% | 77% |
| rETH Collateral Factor | 76% | 77% |
| cbETH Collateral Factor | 76% | 77% |
| USDC Borrow Cap | 8.5M | 12M |
| wstETH Supply Cap | 800 | 1000 |

_{*Cap Recommendations will be implemented via Guardian}

### IR Parameters

A proposal to adjust cbETH's IR curve:

| cbETH IR Parameters | Current | Recommended |
| --------------- | ------- | ----------- |
| Base | 0 | 0 |
| Kink | 0.45 | 0.45 |
| Multiplier | **0.07** | **0.06** |
| Jump Multiplier | 3.15 | 3.15 |

---

# Rationale:

## Risk Parameters
Our recommendations have an estimated VaR at $0 and remains unchanged. **LaR increased to $1.17M from $1.16M with our current recommendations.** Based on simulation results, Gauntlet recommends increasing the collateral factor for staked ETH asssets cbETH, rETH, and wstETH in order to improve capital efficiency.

#### Top wstETH Supply Accts
<!-- https://app.mode.com/gauntlet/reports/187a129e63d7/runs/df2328517864 -->

The largest 2 wstETH suppliers are not incurring any debt.

#### Top rETH Supply Accts

The largest rETH accounts either have no debt or have highly correlated or recursive positions within the BASE market.

<!--- https://app.mode.com/gauntlet/reports/187a129e63d7/runs/263a8cce0172 --->

#### Top cbETH Supply Accts

Excluding the 2nd largest position, all large cbETH collateralized positions are borrowing correlated assets or cbETH. The 2nd largest supplier of cbETH [0x3f7c10cbb](https://debank.com/profile/0x3f7c10cbbb1ea1046a80b738b9eaf3217410c7f6) has a 1.78 health factor with USDC & USDbC borrow positions.

#### BASE Liquidity

| Asset | Borrow Cap | Supply Cap | Borrow Cap Usage | Supply Cap Usage | DEX 25pct Slippage Token | DEX 25pct Slippage USD |
|:--------|:-------------|:-------------|:-------------------|:-------------------|:---------------------------|:-------------------------|
| USDC | 8,500,000 | 15,000,000 | 72.41% | 50.99% | 5,243,976 | $5,244,032.88 |
| cbETH | 1,000 | 6,000 | 59.89% | 51.00% | 1,242 | $2,995,018.64 |
| USDbC | 4,000,000 | 5,000,000 | 10.85% | 11.73% | 3,970,725 | $3,970,768.44 |
| WETH | 8,000 | 10,500 | 59.07% | 62.93% | 2,428 | $5,539,460.11 |
| DAI | 6,000,000 | 7,500,000 | 70.05% | 69.77% | 1,342,398 | $1,343,645.43 |
| rETH | 100 | 600 | 51.00% | 57.92% | 318 | $797,179.97 |
| WSTETH | 160 | 800 | 43.30% | 63.05% | 441 | $1,158,799.06 |

<!-- https://app.mode.com/gauntlet/reports/39432a40d254 -->

#### BASE Circulating Tokens and Supply Cap
| Asset | Circulating Supply | Supply Cap ($) | Supply Cap / Circulating Supply | Supply Cap Liquidity |
| ------ | ------------------ | -------------- | ------------------------------- | -------------------- |
| USDC | 44,122,810 | $15,000,000.00 | 34.00% | $7,351,500.00 |
| cbETH | 19,492.00 | $15,070,560.00 | 30.78% | $7,384,574.40 |
| USDbC | 108,071,282 | $5,000,000.00 | 4.63% | $4,413,500.00 |
| WETH | 51,178 | $24,930,045.00 | 20.52% | $9,241,567.68 |
| DAI | 9,531,400 | $7,425,000.00 | 78.69% | $2,244,577.50 |
| rETH | 803 | $1,567,512.00 | 74.72% | $659,609.05 |
| WSTETH | 2,319 | $2,186,560.00 | 34.50% | $807,933.92 |

## IR Parameters
### cbETH IR Parameters
Utilization rates for cbETH have been relatively low since the initial listing of the asset on the protocol with utilization staying at or below 20%.
#### cbETH Utilization
_{[Link](https://risk.gauntlet.xyz/protocols/moonwell/markets/base?fullscreen=market_health_timeseries_asset_utilization) to chart}

Gauntlet intends to lower the Borrowing rate in order to promote more borrowing of cbETH and generate further reserves for the protocol.

### Recommended cbETH IR Curve

#### Recommended APRs
| Utilization | Borrow APR | Supply APR |
| ----------- | ---------- | ---------- |
| 0 | 0 | 0 |
| 45 | 2.7 | 0.91125 |
| 100 | 175.95 | 131.9625 |
#### Current APRs
| Utilization | Borrow APR | Supply APR |
| ----------- | ----------- | ---------- |
| 0 | 0 | 0 |
| 45 | 3.149999999 | 1.063125 |
| 100 | 176.4 | 132.3 |

The Borrower APR at the kink is anticipated to drop by 45 basis points (bps) with the suggested interest rate (IR) curve. **Depending on supplier and borrower elasticity, this move could potentially boost borrowing by $317,000, potentially increasing annualized reserves by $1,000**. Other LST assets are still in the process of reaching their utilization equilibrium since their introduction in the Base market. Gauntlet will monitor their utilization and consider additional actions if their levels remain low.

#### Moonwell BASE Projected Revenue KPIs

#### Projected Annual Reserves as of Forum Post

## 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

<!-- https://app.mode.com/gauntlet/reports/39432a40d254/runs/7c721714d786 -->

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 Usage

#### Supply Cap Usage

#### Balances by User Strategies

The percentage of borrower balances utilizing LST Yield Farming continues to grow since our last market recommendation. The percentage has increased from 15.85% to 18.06%.

### Stablecoin 25% Slippage on BASE

### Non-Stablecoin 25% Slippage on BASE

## 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.*