Next Steps - Moonwell Apollo and Multichain Uncertainty

Summary:

With the recent announcement of Multichain’s leadership issues, potential technical complications, and associated rumors, the need for a calculated response has arisen for the Moonwell Apollo protocol, which currently has four Multichain markets. This proposal aims to guide the Moonwell community in choosing an appropriate response in light of these recent developments. There are three options on which the community is invited to vote: take no immediate action; initiate Pause Mint and Pause Borrow Guardians; or deprecate Multichain assets.

Overview:

You may be aware that the Moonwell protocol has community “pause guardians” that can pause key functions in the protocol during emergencies to mitigate risk due to extreme events. While the Multichain bridge to Moonriver appears to be operating normally, there is some concern in the community about the future of the Multichain bridge, based on recent events and public communications from the Multichain team.

Moonwell Apollo user position data and Moonriver ecosystem activity do not signal any risk event that would require immediate Guardian actions to prevent insolvency. Current positions on Apollo have been deleveraging risk by withdrawing and repaying Multichain positions. We wanted to poll the community to gauge the desire to take a more risk adverse or risk tolerant approach to the current situation, so that the community can signal their preferred risk management approach:

• Choice A: No Immediate Action, Continued Monitoring of the Situation
• Choice B: Initiate Pause Mint (Supply) and Pause Borrow Guardians
• Choice C: Initiate Pause Guardians, Followed by Deprecating Multichain Assets

Choice A: No Immediate Action This choice implies trusting the resilience of Multichain. Gauntlet Network will continue closely monitoring the Multichain protocol, Moonriver ecosystem, Solarbeam DEX liquidity, and the .multi markets on Moonwell Apollo, but will refrain from recommending any immediate changes. Gauntlet will also provide parameter recommendations to lower the borrow caps and collateral factors of Multichain assets during the regular 4 week cadence. Guardian enactment will be held in reserve for any signs of urgent threats, including:

• Depegging of Multichain asset prices on Moonriver
• USDC/USDT price deviation > 2%
• ETH.multi price deviation > 5%
• Significant outflows of liquidity from Solarbeam DEX
• Growth of debt positions on Moonwell

Pros

• Allows the Moonwell Apollo, Solarbeam, and Moonriver market dynamics to function normally until the market signals indicate the community should take the necessary actions.
• There would be no need to deprecate the two historically largest markets (USDC.multi and ETH.multi) unless market conditions require it.

Cons

• This could leave the protocol vulnerable to new bad debt positions or full utilization risk if the pause guardians are not enacted quickly enough. There could also be new bad debt positions created that are unavoidable even if pause guardians are activated immediately upon depeg, as active loans currently exist in the markets.

Choice B: Initiate Pause Mint and Pause Borrow Guardians Moonwell can initiate Pause Mint Guardian and Pause Borrow Guardian for Multichain assets on Moonwell Apollo to freeze the USDC.multi, ETH.multi, and USDT.multi liquidity pools. These actions would help to prevent the following actions:

• Borrow Pause: will prevent new borrowing of Multichain assets, which could lead to low liquidity and potentially failed liquidations of Multichain assets if no liquidity is available

• Supply Pause: Will prevent depositing new Multichain assets, which can help the protocol avoid the creation of bad debt in a potential scenario where Multichain assets depeg from the underlying asset prices delivered by Chainlink price feeds

Pros

• Protects the protocol from any further risk increase due to Multichain assets.

Cons

• Freezes the 2 historically largest liquidity pools on Moonwell Apollo (USDC.multi and ETH.multi).
• If Moonwell pauses Multichain assets, those actions could have unintended consequences for the Moonriver ecosystem. These actions could cause a market reaction and initiate the deterioration of Multichain assets on Moonriver.

Choice C: Deprecate Multichain Assets This is the most risk averse option, suitable for those without confidence in Multichain moving forward. This would involve the initiation of Pause Mint and Pause Borrow Guardians, as in Choice B, followed by a phased deprecation of Multichain assets markets. This phased deprecation approach would function similarly to that of the BUSD.wh market on Moonwell Artemis, with Gauntlet submitting parameter recommendations that lower borrow cap and collateral factors on these Multichain markets.

Motivation:

The motivation behind this proposal is to safeguard the protocol and its community, ensuring a secure and resilient ecosystem. Each of these choices brings unique pros and cons which can be found in the proposal text above. As a community, we can understand these implications and decide on the best course of action, depending on our level of risk tolerance.

Implementation:

The implementation of this proposal depends on the voting outcome. In case of Choice A, no immediate changes would occur, but close monitoring would continue, and actions may be taken in response to further developments. In case of Choices B or C, the necessary actions would involve changes to the protocol's operation, including pausing certain functions (supplying and borrowing) or gradually withdrawing support (deprecating) for Multichain assets.

Voting:

Community members are invited to vote using a ranked-choice method, specifying their first, second, and third choices in their order of preference.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.