On September 30th the proposal to add $500k in $STAKE rewards to the Agave protocol passed. You can read more here.
There were 2 parts of this agreement:
- matching the rewards with $500k in AGVE and
- add the $STAKE token to the Agave protocol and to be used for collateral.
This proposal is requesting the support of adding the $STAKE token as collateral to the Agave Protocol.
We also must determine the appropriate risk parameters to use. There are 3 parameters: Liquidation Threshold, LTV, and Reserve Factor
The liquidation threshold is the percentage at which a position could get liquidated.
The LTV is the maximum the user can use as collateral. The difference between LTV and the liquidation threshold is set to protect users from a sharp drop in price resulting in a liquidation.
The reserve factor allocates a share of the protocol’s interests to a collector contract as reserve for the ecosystem
I would propose for simplicity and to allow users of the protocol maximum freedom of the protocol we set the LTV 5% below the liquidation threshold.
It is standard to use a higher reserve factor for riskier assets. 10% is standard for very low risk, 20% for medium risk, and 35% of very high risk. These values for all intensive purposes are arbitrary at this time but we can always change them later and for this reason I would propose we can leave this at 10%.
Most importantly is the actual liquidation threshold. If the value of the collateral decreases, it might reach the liquidation threshold and start getting liquidated. The markets then needs to hold sufficient volume for these liquidations because the selling of the underlying asset will result in some amount of slippage affecting the value recovered.