Gauntlet makes the following recommendations to optimize risk and capital efficiency for Acala and Karura:
Recommendations:
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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For a second-grade student:
Gauntlet is giving advice to two digital currencies, Acala and Karura, on how to be more efficient with their money. They suggest changing some numbers to make things better. They want to make sure that the currencies are safe and don't lose too much money. They also want to make sure that people who use the currencies don't lose their money. They have looked at how much money could be lost and found that two currencies are riskier than the others. They suggest making them safer by changing some numbers. They also say that some people might have to sell their money if they make these changes, but they don't think it will happen very often.