Risk parameters are best adjusted according to market conditions to balance insolvencies, liquidations, and capital efficiency. Setting minimum collateral ratios at appropriate levels can provide adequate guardrails for users without restricting them too heavily. Raising the minimum collateral ratio can prevent users from taking on additional risk in complicated market conditions and token price volatility. Liquidation is an important tool for managing systemic risk and encouraging responsible borrowing. Higher liquidation fees can reduce insolvency risk by encouraging borrowers to be more cautious and responsible when taking on debt, to maintain adequate levels of collateral and avoid taking on excessive risk.
The following suggestion is proposed to optimize for risk and capital efficiency for Acala.
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