Gauntlet makes the following recommendations to optimize risk and capital efficiency for Karura:
- We recommend lowering the liquidation ratio for KSM from 1.3 to 1.25.
Rationale: Since our last recommendations, VaR has remained at $1.7M. KAR’s VaR rose from $233k to $784k, while LKSM’s VaR fell from $1.5M to $965k. KSM’s VaR remains at ~$0. We recommend lowering the KSM liquidation ratio to improve capital efficiency, as our simulations show it to have relatively low chances of insolvency.
Although our simulations show LKSM and KAR as having relatively higher chances of insolvency, we note that the protocol plans on incentivizing greater liquidity in the aUSD-KAR and aUSD-LKSM pools. We are not recommending higher liquidation thresholds as we expect the market risk to fall as liquidity rises. Our platform will continue to ingest on-chain data to inform how market risk evolves following changes in liquidity conditions.
The community should use Gauntlet’s Risk Dashboard to understand better the updated parameter suggestions and general market risk in Karura.