Background
As part of our ongoing efforts to enhance FiRM attractiveness as a lending platform, the Risk Working Group (RWG) periodically advises on proposed adjustments to market parameters. These adjustments, which may include changes to collateral factors, daily borrow limits, liquidation factors, and market supply ceilings, are meticulously evaluated by the RWG. The goal is to strike a balance between attracting new users and maintaining the platform’s stability and security. The cvxFXS market has emerged as a key focus, warranting a reevaluation of its parameters to align with the latest market conditions and risk profiles.
Risk Assessment
The recent in-depth assessment by the RWG, which can be accessed here, highlights the strengths and weaknesses of cvxFXS as a collateral option for lending protocols. Key highlights of the assessment include:
Market Usage: cvxFXS was once the 4th but is now the 7th most utilized market on FiRM with $325k in deposits and $80k in borrows. The market has experienced a decrease in usage since its peak between August and October. There has been a previous adjustment in daily borrow limit through a governance proposal.
Total Asset Score (TAS): The TAS for cvxFXS stands at 4.49, a slight decrease from previous evaluations. This score is derived from a multifaceted analysis encompassing factors such as market capitalization, trading volume, price volatility, token distribution, project fundamentals, and token utility.
Holders Analysis: Details about cvxFXS holders and liquidity pools are provided, indicating a healthy distribution of addresses and liquidity. Studying the two deepest on-chain LPs, the top 3 liquidity provider addresses hold a quarter of liquidity, and the top 10 less than half.
Slippage/Price Impact Simulations: Analysis of slippage figures for various trade amounts in different currencies is presented. While liquidity has deepened since August, slippage and price impact have worsened.
Overview
Based on the RWG’s comprehensive risk assessment, we propose two key parameter adjustments for the cvxFXS market on FiRM:
- Increase in Collateral Factor: From 50% to 65%, reflecting confidence in the asset’s fundamentals and utility, balanced against its market cap and trading volume concerns.
- Decrease in Daily Borrow Limit: From 500,000 DOLA to 200,000 DOLA, aligning with the asset’s liquidity and current market dynamics to mitigate potential risks.
Conclusion
The proposed parameter adjustments for the cvxFXS market are a strategic response to its evolving risk profile and market conditions. These changes are designed to optimize the market’s performance on FiRM, balancing growth opportunities with risk mitigation, and underlining Inverse Finance’s commitment to market stability and user security.
On-Chain Actions
- Set cvxFXS market’s Collateral Factor parameter to 65%
- Set cvxFXS market’s Daily Borrow Limit parameter to 200,000