Proposal to Adjust Liquidation Factor in cvxCRV and st-yCRV FiRM Markets

Summary

This proposal seeks to increase the Liquidation Factor for the cvxCRV and st-yCRV markets on FiRM from 80% to 100%. This adjustment addresses the prolonged negative trends observed in both CRV derivatives; namely persistent peg deterioration and declining liquidity. The change aims to enhance protocol safety by ensuring liquidations remain economically viable for liquidators even under continued adverse market conditions.

Background

FiRM’s operational stability and risk mitigation depend significantly on the accurate calibration of collateral parameterization. The protocol has consistently demonstrated robust performance, successfully processing liquidations even during extreme market stress without incurring bad debt. The Liquidation Factor determines the maximum percentage of a borrower’s debt that can be repaid in a single liquidation transaction, directly impacting liquidator economics and protocol safety.

cvxCRV has exhibited poor performance over a prolonged period that warrant careful parameter adjustment:

  • Persistent Peg Deterioration: cvxCRV has traded consistently below its theoretical peg to CRV, declining from ~94% in mid-2024 to below 50% by mid-2025, while yCRV has similarly deteriorated from 89.21% to below 50% over the same period. Extended periods below peg prevent CRV derivatives from locking additional veCRV, effectively diluting their voting power relative to direct veCRV holders during that time due to ongoing CRV emissions.
  • Liquidity Contraction: cvxCRV pool liquidity has decreased by over 60% from $43.8M to $16.5M between December 2024 and June 2025, while yCRV liquidity has declined from $4.13M to $2.79M (32% decrease) over a similar timeframe.
  • Yield Suppression: cvxCRV gauge APRs have compressed significantly from 24.82% to 9.33% over the past year, while yCRV has seen compression from 23.10% to 10.69%, reflecting reduced incentives and diminished market demand for both CRV derivative.

Recommendations

The RWG recommends increasing the cvxCRV and st-yCRV market liquidation factors to 100% based on comprehensive analysis of current market conditions and liquidation economics for both CRV derivative assets. This adjustment is designed to have no immediate impact on existing positions.

The 100% liquidation factor improves liquidator profitability margins and provides increased flexibility to prevent bad debt accumulation during sudden price drops and high gas costs, which is crucial for assets with deteriorated liquidity conditions and gas intensive liquidation mechanics.

In doing so, we follow established methodology used in previous successful parameter adjustments, ensuring consistency with FiRM’s proven risk management framework.

On-Chain Actions

  • Set Liquidation Factor for FiRMs cvxCRV market to 100%
  • Set Liquidation Factor for FiRMs st-yCRV market to 100%