#17·Recommendations: Raising Liquidation Ratios and Collateral Ratios

At block #1634800: Increase the minimal collateral for KAR from 1.8 to 1.9; Increase the minimal collateral for LKSM from 2.0 to 2.1.

Starting from block #1634800, and repeat every 2250 blocks for 5 times in total: Increase the liquidation ratio for KAR by 1%; Increase the liquidation ratio for LKSM by 2%.

Recommendation: https://acala.discourse.group/t/gauntlet-risk-parameter-recommendations-raising-liquidation-ratios-and-collateral-ratios/823

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

Karura Recommendations:

• We recommend raising the liquidation ratio for KAR from 1.5 to 1.55.
• We recommend raising the minimum collateral ratio for KAR from 1.8 to 1.9.
• We recommend raising the liquidation ratio for LKSM from 1.5 to 1.6.
• We recommend raising the minimum collateral ratio for LKSM from 2.0 to 2.1.

Rationale:

The market has experienced significant swings since our last recommendations on Feb 17th, with KSM falling from $169 on Feb 17th to a low of $107 on Feb 24th, before recovering over the last few days. Given relatively high volatility, our economic simulations show significant risk of insolvency for LKSM at its current parameters and moderate risk for KAR, so we are recommending higher liquidation ratios and minimum collateral ratios for both assets. These changes reduce the Value at Risk by $120k and the Liquidations at Risk by $3k. As of our most recent data, only one user will be liquidated by the increase in KAR’s liquidation ratio, and only for $141 of kUSD. The increase in LKSM’s liquidation ratio will not liquidate any users as of our most recent data.

Dashboard:

The community should use Gauntlet’s Risk Dashboard to better understand the updated parameter suggestions and general market risk in Karura.