Gauntlet Risk Parameter Recommendation (8/03/2022)

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.

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.

Here are the key points from the SubSquare post about Gauntlet's recommendations for Acala and Karura:

Gauntlet has some suggestions to make Acala and Karura safer and more efficient.
They recommend changing some numbers that determine how much money needs to be put up as collateral for different types of cryptocurrency.
These changes will make things a little bit safer for Acala and Karura, but won't eliminate all risk.
Gauntlet has looked at how much money could be lost if things go wrong, and they think these changes will help.
There's a small chance that some users might have to sell their cryptocurrency if these changes are made, but Gauntlet doesn't think this will happen very often.

#11·Gauntlet Risk Parameter Recommendation (8/03/2022)