#20·Gauntlet Risk Parameter Recommendations: Changes to KSM Parameters

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

Karura Recommendations:

• We recommend lowering the liquidation ratio for KSM from 1.35 to 1.3.
• We recommend lowering the minimum collateral ratio for KSM from 1.7 to 1.65.

Rationale: Since Gauntlet's last recommendations, VaR has fallen from $2.5M to $1.7M. The majority of this decrease comes from KAR, which fell from $1M to $272k. The dramatic fall in KAR’s risk is driven by three causes:

1. We raised the liquidation ratio, giving more buffer between CDPs and insolvency.
2. The rising price of KAR has moved the collateral ratios for existing borrowers higher.
3. The handful of liquidations that have happened have removed several of the riskiest positions.

The VaR of LKSM fell slightly from $1.5M to $1.4M. KSM’s VaR remains close to zero despite us lowering its liquidation ratio last week. Gauntlet's analysis shows that we can continue to lower its liquidation ratio to increase capital efficiency with an acceptable increase in risk.

Dashboard:

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