LCDOT debt is approaching the 5M limit (~4.5M). While it’s important to grow the protocol, our analysis shows that it would be prudent to gradually increase the debt ceiling rather than having a more aggressive liquidation ratio or required collateral ratio which can more directly increase the chances of liquidation cascades.
The total liquidity in aUSD-LCDOT pool is around $6M, and a $300k LCDOT liquidation can potentially move the market price by around 20% (assuming no one arbs the pool immediately). Therefore, we recommend increasing the LCDOT debt ceiling to 6M and observing user behavior. Ahead of making more aggressive parameter recommendations, we would recommend (1) increasing aUSD-LCDOT liquidity (2) creating an aUSD-DOT pool (3) having a two-way DOT bridge (in addition to Kucoin exchange that can potentially help liquidators to offload their liquidated LCDOT position to stablecoins through LCDOT-DOT pool and Kucoin).
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