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

Recommendations:

• We recommend decreasing the ACA liquidation ratio from 1.65 to 1.6.
• We recommend decreasing the ACA minimum collateral ratio from 2.0 to 1.95.
• We recommend increasing the LDOT liquidation ratio from 2.3 to 2.35.

Rationale:
The VaR is $1.1M, and our recommendations will reduce it slightly. KAR has a VaR of effectively $0. LCDOT has a VaR of $423k. LDOT has a VaR of $160k. LKSM has a VaR of $522k. ACA, DOT, KAR, and KSM each have a VaR of $0.

ACA is relatively safe from a market risk perspective, so can have its liquidation ratio gradually lowered to improve capital efficiency. LDOT is relatively riskier, so we recommend increasing its liquidation ratio to reduce insolvency risk. DOT, KAR, KSM, LCDOT, and LKSM’s liquidation ratios are currently at an optimal balance of risk and capital efficiency.

Potential Forced Liquidations:
Whenever we raise liquidation ratios, there’s a chance that some users may immediately become liquidatable as a result. However, as of our latest data, no LDOT borrowers were under our recommended liquidation ratio.

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