It is proposed to adjust LTV risk parameters for stMATIC on 0VIX Protocol.
Updating the parameters seeks to maintain the overall risk tolerance of the protocol while overall boosting capital efficiency. We believe this proposal represents a healthy risk trade-off for stMATIC that will make 0VIX more competitive in the Polygon ecosystem.
The reasoning behind choosing LTV parameters for stMatic is a specific kind of risk assessment explicitly tailored to stablecoin assets (stMatic can be thought of as a MATIC-stable asset). The risks associated with these assets cannot be modelled via simple price stressing as their greatest risk is structurally associated with the chances that they depeg from their underlying asset. For these assets, we focus on the net depeg tolerance that the protocol can handle. The explicit calculation is complex and requires dynamic real-time updating as it generally requires analyzing both available DEX/AMM liquidity as well as usage of these assets as collateral on other Polygon lending protocols. However, as a general rule of thumb, the difference between 100% and the sum of liquidation LTV and liquidation incentive (10%) gives a rough estimate of the magnitude of a depeg event which risks making 0VIX insolvent. For 0VIX’s stable assets, these depeg tolerances come out to:
- stMatic: 30%
The main depeg risk for stMatic would result from a slashing penalty incurred by its validators. Given the extensive validator set offered by the Lido DAO’s product, a majority of validators would need to be slashed throughout a 3-day epoch for a sufficient depeg event to take place. Given the permissioned and centralized nature of Polygon validators the risk assessment team deems this to be a low-probability event as it would amount to a structural failure of the Polygon blockchain as a whole and, as such, should be implicitly priced-in by a DeFi user engaging with the 0VIX Protocol.
It is proposed to update the LTVs on 0VIX as shown in this table:
- Asset: stMATIC
- Current LTV: 50%
- Proposed LT: 60%
The options with the most votes will be adopted.
- 2 days
- Accept the proposal: Yes
- Further discussion needed
Milestones and Deliverables
Once the community has voted, the 0VIX team will implement the LTV changes in the following epoch as per the results of the voting.