Gauntlet Risk Parameter Recommendation (6/9/2022)

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

Recommendations:

  • We recommend increasing LKSM’s liquidation ratio from 1.7 to 1.75.
  • We recommend increasing LKSM’s minimum collateral ratio from 2.1 to 2.2.
  • We recommend increasing LCDOT’s liquidation ratio from 2.3 to 2.35.
  • We recommend decreasing KAR’s liquidation ratio from 1.55 to 1.5.
  • We recommend decreasing DOT’s liquidation ratio from 1.55 to 1.5.
  • We recommend decreasing LDOT’s liquidation ratio from 2.25 to 2.2.
  • We recommend decreasing LDOT’s minimum collateral ratio from 3.0 to 2.8.
  • We recommend decreasing ACA’s liquidation ratio from 1.95 to 1.9.

Rationale:

Since our last recommendations, VaR has increased from $694k to $1.02M. All of the VaR comes from two assets: LKSM and LCDOT. LKSM’s VaR has decreased from $565k to $541k. LCDOT’s VaR has increased from $98k to $479k. The other assets (KSM, KAR, DOT, LDOT, ACA) all currently have VaR of $0.

KAR, DOT, LDOT, and ACA are all relatively safe from a market risk perspective, so can have their liquidation ratios gradually lowered to improve capital efficiency. LKSM and LCDOT remain risky, so we recommend continuing to increase their liquidation thresholds to further reduce insolvency risk. KSM optimally balances insolvency risk against capital efficiency at its current parameters.

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.

Thanks for the recommendation. This is the onchain motion:
Karura: Gauntlet Risk Parameter Recommendation (6/9/2022)
Acala: Gauntlet Risk Parameter Recommendation (6/9/2022)