Collateralization under stress

Evidence summary #

No formal stress simulation performed. Dominant flagship markets (86% LLTV wstETH/WETH/USDC) start liquidation at 86% LTV — a 20%+ price drop puts positions in liquidation zone. LIF ~5% may be thin for fast cascades. Market isolation limits contagion. Gauntlet performs simulation-based modeling for MetaMorpho vaults. No evidence of below-100% net collateralization at protocol level.

Detail #

Template requires curator simulation for green confidence (>150% under stress) or yellow (110-150%). No formal simulation performed during assessment (PH classification). Qualitative: flagship markets use 86% LLTV — positions liquidatable at 86% LTV, meaning lenders receive collateral + 5% LIF bonus during liquidations. Under a 30% ETH price drop, a position at 80% LTV before the drop would reach 80%/0.7 ≈ 114% LTV (eligible for liquidation). The 5% LIF means liquidators receive collateral worth collateral_seized * 1.05 — thin relative to Aave (5-10% bonus) but structured to reduce bad-debt risk through smaller incentive on high-LLTV markets. Bad debt occurs when LTV >100% before liquidation — this is a market-specific risk that scales with collateral volatility and oracle accuracy. Market isolation means losses are contained to individual markets. Gauntlet methodology applies simulation-based stress testing for curated vaults per their published methodology.

Sources #

Methodology #

Determine whether under curator-defined stress scenario (top-3 collateral assets drop 50%), protocol net collateralization falls below 110%.

See the full factor methodology and distribution across all protocols →