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

Recommendations:

• We recommend decreasing ACA's liquidation ratio from 1.9 to 1.85.
• We recommend decreasing ACA's minimum collateral ratio from 2.4 to 2.3.
• We recommend decreasing DOT's liquidation ratio from 1.5 to 1.45.
• We recommend decreasing DOT's minimum collateral ratio from 2.0 to 1.9.
• We recommend decreasing KAR's liquidation ratio from 1.5 to 1.45.
• We recommend decreasing KAR's minimum collateral ratio from 1.9 to 1.8.
• We recommend increasing KSM's liquidation ratio from 1.25 to 1.3.
• We recommend increasing KSM's minimum collateral ratio from 1.5 to 1.6.
• We recommend increasing LCDOT's liquidation ratio from 2.35 to 2.4.
• We recommend increasing LCDOT's minimum collateral ratio from 2.75 to 2.85.
• We recommend increasing LDOT's liquidation ratio from 2.2 to 2.25.
• We recommend increasing LDOT's minimum collateral ratio from 2.8 to 2.9.
• We recommend decreasing LKSM's liquidation ratio from 1.75 to 1.7.
• We recommend decreasing LKSM's minimum collateral ratio from 2.2 to 2.1.

Rationale:
Since our last recommendations, VaR has decreased from $1.02M to $63k. All of the VaR comes from two assets: LDOT and LCDOT. LDOT's VaR has increased from $0 to $4k. LCDOT’s VaR has decreased from $479k to $60k. LKSM’s VaR has decreased from $541k to $0. The other assets (KSM, KAR, DOT, ACA) all have VaR remaining at $0.ACA, DOT, KAR, and LKSM are all relatively safe from a market risk perspective, so can have their liquidation ratios gradually lowered to improve capital efficiency. KSM, LCDOT, and LDOT are all relatively more risky, so we recommend increasing their liquidation thresholds to reduce insolvency risk.

Potential forced liquidations:
Whenever we raise liquidation thresholds, there's a chance that some users may immediately become liquidatable as a result. For KSM, the riskiest account has a collateral ratio of 1.46, so would not be liquidated by this change at today's KSM price. For LDOT, the riskiest account has a collateral ratio of 2.45, so would not be liquidated by this change at today's LDOT price. One large account borrowing against LCDOT, with $40k aUSD borrowed, is relatively close to being liquidated, though we do not expect it to be forced liquidated as a direct result of this change

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