Gauntlet Risk Parameter Recommendation (6/2/2022)

Gauntlet makes the following recommendations to optimize risk and capital efficiency for Acala and Karura:

Recommendations:

  • We recommend increasing LKSM’s liquidation ratio from 1.65 to 1.7.
  • We recommend increasing LCDOT’s liquidation ratio from 2.25 to 2.3.
  • We recommend decreasing ACA’s liquidation ratio from 2.0 to 1.95.
  • We recommend decreasing DOT’s liquidation ratio from 1.6 to 1.55.

Rationale:

We have ingested the new Acala assets into our simulations, so we can report on their status alongside the existing Karura assets.

Since our last recommendations, VaR has decreased from $827k to $694k. All of the VaR comes from two assets: LKSM and LCDOT. LKSM’s VaR has decreased from $827k to $565k. LCDOT has a VaR of $98k. The other assets (KSM, KAR, DOT, ACA) all currently have VaR of $0.

Now that we have simulations of Acala assets, Gauntlet’s models can elucidate which assets present the most market risk to Acala. DOT and ACA both show low insolvency risk and so can accommodate lower liquidation thresholds. LCDOT is relatively riskier, so a higher liquidation threshold can mitigate risk to the protocol. LKSM remains risky, so we recommend continuing to increase its liquidation threshold to further reduce insolvency risk.

Dashboard:

The community should use Gauntlet’s Risk Dashboard to understand better the updated parameter suggestions and general market risk in Acala.

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.

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Thanks for the recommendation. Here are the oncahin motions:

Karura: Gauntlet Risk Parameter Recommendation (6/2/2022)
Acala: Gauntlet Risk Parameter Recommendation (6/2/2022)

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