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

**Recommendations:**

* We recommend decreasing the ACA liquidation ratio from 1.7 to 1.65.
* We recommend decreasing the ACA minimum collateral ratio from 2.05 to 2.0.
* We recommend decreasing the DOT minimum collateral ratio from 1.7 to 1.6.
* We recommend increasing the KSM liquidation ratio from 1.5 to 1.55.
* We recommend increasing the KSM minimum collateral ratio from 1.8 to 1.9.

**Rationale:**
The VaR is $1.7M, and our recommendations will leave it unchanged. KAR has a VaR of $3k. LCDOT has a VaR of $575k. LDOT has a VaR of $343k. LKSM has a VaR of $810k. ACA, DOT, 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. KSM is relatively riskier, so we recommend increasing its liquidation ratio to reduce insolvency risk. DOT, KAR, LCDOT, LDOT, 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 most recent data, the lowest KSM collateral ratio is 1.78, so no accounts would be immediately liquidated at today’s prices.


*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.*

Gauntlet has given some recommendations to Acala and Karura to optimize their risk and capital efficiency. Here are the recommendations:

- Decrease the ACA liquidation ratio from 1.7 to 1.65.
- Decrease the ACA minimum collateral ratio from 2.05 to 2.0.
- Decrease the DOT minimum collateral ratio from 1.7 to 1.6.
- Increase the KSM liquidation ratio from 1.5 to 1.55.
- Increase the KSM minimum collateral ratio from 1.8 to 1.9.

These recommendations are based on the VaR (Value at Risk) of each asset. ACA is relatively safe, so its liquidation ratio can be gradually lowered to improve capital efficiency. KSM is riskier, so its liquidation ratio should be increased to reduce insolvency risk. The other assets have an optimal balance of risk and capital efficiency.

There is a chance that some users may become liquidatable when liquidation ratios are raised, but as of the most recent data, no accounts would be immediately liquidated at today's prices.

By approving this proposal, the terms of service available at gauntlet.network/tos will govern any services provided by Gauntlet.

calls

Gauntlet Risk Parameter Recommendation (7/27/2022)

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

**Recommendations:**

* We recommend decreasing the ACA minimum collateral ratio from 2.1 to 2.05.
* We recommend decreasing the DOT liquidation ratio from 1.35 to 1.3.
* We recommend decreasing the DOT stability fee from 3.0% to 2.75%.
* We recommend increasing the KSM liquidation ratio from 1.45 to 1.5.

**Rationale:**
The VaR is $2.7M, and our recommendations will leave it unchanged. ACA has a VaR of $824k. KAR has a VaR of $729k. LCDOT has a VaR of $381k. LDOT has a VaR of $262k. LKSM has a VaR of $495k. DOT and KSM both have a VaR of $0.

DOT is relatively safe from a market risk perspective, so can have its liquidation ratio gradually lowered to improve capital efficiency. KSM is relatively riskier, so we recommend increasing its liquidation ratio to reduce insolvency risk. ACA, KAR, LCDOT, LDOT, and LKSM’s liquidation ratios are currently at an optimal balance of risk and capital efficiency.

As background, we have observed a general downward trend in lending interest rates across DeFi. In line with this, we recommend lowering the DOT stability fee. For further context, lending rates for DAI and USDC on Ethereum mainnet have fallen below 2% for major DeFi lending platforms reflecting lower demand for leverage than we have seen historically.

**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, there were no borrowers with KSM collateral ratios below 1.79, so we do not anticipate any immediate risk-off liquidations due to this parameter change.

*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 main 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 related to how much cryptocurrency needs to be put up as collateral for loans.
- They also recommend changing the interest rate for one of the cryptocurrencies.
- Gauntlet thinks that these changes will not increase the risk of losing money for Acala and Karura.
- There is a small chance that some users might have to sell their cryptocurrency if these changes are made, but Gauntlet does not think this will happen.

Gauntlet Risk Parameter Recommendation (7/20/2022)

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

**Recommendations:**

* We recommend decreasing the ACA liquidation ratio from 1.75 to 1.7.
* We recommend decreasing the ACA minimum collateral ratio from 2.2 to 2.1.
* We recommend increasing the KSM liquidation ratio from 1.4 to 1.45.
* We recommend increasing the LCDOT minimum collateral ratio from 2.7 to 2.8.
* We recommend increasing the LDOT liquidation ratio from 2.25 to 2.3.
* We recommend increasing the LDOT minimum collateral ratio from 2.8 to 2.85.
* We recommend increasing the LKSM liquidation ratio from 1.8 to 1.85.
* We recommend increasing the LKSM minimum collateral ratio from 2.3 to 2.4.

**Rationale:**

The VaR is $3.5M, and our recommendations will reduce it to $3.4M. ACA has a VaR of $1.1M. KAR has a VaR of $888k. LCDOT has a VaR of $472k. LDOT has a VaR of $334k. LKSM has a VaR of $674k. DOT and KSM both 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. KSM, LDOT, and LKSM are relatively riskier, so we recommend increasing their liquidation ratios to reduce insolvency risk. DOT, KAR, and LCDOT’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, there are no borrowers with liquidation ratios below those we have recommended.

*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.*

For a second-grade student:

Gauntlet is giving advice to Acala and Karura to make them safer and more efficient. They suggest changing some numbers to make things better. They want to make sure that the companies have enough money to pay for things if something goes wrong. They also want to make sure that the companies are not taking too much risk. They checked to make sure that no one will lose their money if they make these changes.

Gauntlet Risk Parameter Recommendation (7/14/2022)

Untitled - financial motion #30

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

**Recommendations:**

* We recommend decreasing ACA’s liquidation ratio from 1.8 to 1.75.

* We recommend decreasing DOT’s liquidation ratio from 1.4 to 1.35.

* We recommend decreasing DOT’s minimum collateral ratio from 1.8 to 1.7.

* We recommend decreasing KAR’s liquidation ratio from 1.4 to 1.35.

* We recommend decreasing KAR’s minimum collateral ratio from 1.7 to 1.6.

* We recommend increasing KSM’s liquidation ratio from 1.35 to 1.4.

* We recommend increasing KSM’s minimum collateral ratio from 1.7 to 1.8.

* We recommend increasing LKSM’s liquidation ratio from 1.75 to 1.8.

* We recommend increasing LKSM’s minimum collateral ratio from 2.2 to 2.3.

**Rationale:**

Since our last recommendations, VaR has increased from $478k to $670k. All of the VaR comes from three assets: LDOT, LCDOT, and LKSM. LDOT’s VaR has increased from $66k to $203k. LCDOT’s VaR has increased from $1k to $120k. LKSM’s VaR has decreased from $411k to $348k. The other assets (KSM, KAR, DOT, ACA) all have VaR remaining at $0.

ACA, DOT, and KAR are all relatively safe from a market risk perspective, so can have their liquidation ratios gradually lowered to improve capital efficiency. LKSM and KSM are relatively more risky, so we recommend increasing their liquidation thresholds to reduce insolvency risk. LDOT and LCDOT’s liquidation thresholds are currently at an optimal balance of risk and capital efficiency.

**Potential forced liquidations:**

Whenever we raise liquidation thresholds, there’s a chance that some users may immediately become liquidatable as a result. ***As of today, for KSM, the riskiest account has a collateral ratio of 1.39, so would be liquidated by this change at today's KSM price. That user has borrowed 24.5k aUSD.*** 

*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.*

For a second-grade student:

Gauntlet is giving advice to Acala and Karura to make them safer and more efficient. They suggest changing the amount of money needed to be safe when borrowing and lending different types of money. They want to make some things a little less safe and some things a little more safe. They also warn that some people might have to pay back their loans if the changes are made.

Gauntlet Risk Parameter Recommendation (6/30/2022)

Untitled - financial motion #29

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

**Recommendations:**

* We recommend decreasing ACA's liquidation ratio from 1.9 to 1.85.
* We recommend decreasing ACA's minimum collateral ratio from 2.4 to 2.3.
* We recommend decreasing DOT's liquidation ratio from 1.5 to 1.45.
* We recommend decreasing DOT's minimum collateral ratio from 2.0 to 1.9.
* We recommend decreasing KAR's liquidation ratio from 1.5 to 1.45.
* We recommend decreasing KAR's minimum collateral ratio from 1.9 to 1.8.
* We recommend increasing KSM's liquidation ratio from 1.25 to 1.3.
* We recommend increasing KSM's minimum collateral ratio from 1.5 to 1.6.
* We recommend increasing LCDOT's liquidation ratio from 2.35 to 2.4.
* We recommend increasing LCDOT's minimum collateral ratio from 2.75 to 2.85.
* We recommend increasing LDOT's liquidation ratio from 2.2 to 2.25.
* We recommend increasing LDOT's minimum collateral ratio from 2.8 to 2.9.
* We recommend decreasing LKSM's liquidation ratio from 1.75 to 1.7.
* We recommend decreasing LKSM's minimum collateral ratio from 2.2 to 2.1.

**Rationale:**
Since our last [recommendations](https://acala.discourse.group/t/gauntlet-risk-parameter-recommendation-6-9-2022/1013), 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


*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.*

For a second-grade student:

Gauntlet has some suggestions to make Acala and Karura safer and more efficient. They recommend changing the rules for how much money you need to have to borrow different types of cryptocurrency. They suggest making it easier to borrow some types of cryptocurrency and harder to borrow others. This will help make sure people don't lose too much money if the value of the cryptocurrency changes. They also say that some people might have to sell their cryptocurrency if these changes are made, but they don't think it will happen to many people.

Gauntlet Risk Parameter Recommendation (6/15/2022)

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

**Recommendations:**

* We recommend increasing LKSM’s liquidation ratio from 1.7 to 1.75.
* We recommend increasing LKSM’s minimum collateral ratio from 2.1 to 2.2.
* We recommend increasing LCDOT’s liquidation ratio from 2.3 to 2.35.
* We recommend decreasing KAR’s liquidation ratio from 1.55 to 1.5.
* We recommend decreasing DOT’s liquidation ratio from 1.55 to 1.5.
* We recommend decreasing LDOT’s liquidation ratio from 2.25 to 2.2.
* We recommend decreasing LDOT’s minimum collateral ratio from 3.0 to 2.8.
* We recommend decreasing ACA’s liquidation ratio from 1.95 to 1.9.

**Rationale:**


Since our [last recommendations](https://acala.discourse.group/t/gauntlet-risk-parameter-recommendation-6-2-2022/948), VaR has increased from $694k to $1.02M. All of the VaR comes from two assets: LKSM and LCDOT. LKSM’s VaR has decreased from $565k to $541k. LCDOT’s VaR has increased from $98k to $479k. The other assets (KSM, KAR, DOT, LDOT, ACA) all currently have VaR of $0.

KAR, DOT, LDOT, and ACA are all relatively safe from a market risk perspective, so can have their liquidation ratios gradually lowered to improve capital efficiency. LKSM and LCDOT remain risky, so we recommend continuing to increase their liquidation thresholds to further reduce insolvency risk. KSM optimally balances insolvency risk against capital efficiency at its current parameters.


**Dashboard:**

The community should use [Gauntlet’s Risk Dashboard](https://gov.gauntlet.network/acala) to understand better the updated parameter suggestions and general market risk in Acala.

*<sup>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.<sup>*

For a second-grade student:

- Gauntlet made some suggestions to help Acala and Karura be safer and more efficient.
- They suggested changing some numbers for different assets like LKSM, LCDOT, KAR, DOT, LDOT, and ACA.
- They want to make sure that the assets are not too risky and that there is enough money to cover any losses.
- They have a dashboard that people can use to see how safe the assets are.
- If people agree with these suggestions, they need to follow some rules from Gauntlet.

Gauntlet Risk Parameter Recommendation (6/9/2022)

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

**Recommendations:**

* We recommend increasing LKSM's liquidation ratio from 1.65 to 1.7.
* We recommend increasing LCDOT's liquidation ratio from 2.25 to 2.3.
* We recommend decreasing ACA's liquidation ratio from 2.0 to 1.95.
* We recommend decreasing DOT's liquidation ratio from 1.6 to 1.55.

**Rationale:** 

We have ingested the new Acala assets into our simulations, so we can report on their status alongside the existing Karura assets. 

Since our [last recommendations](https://acala.discourse.group/t/gauntlet-risk-parameter-recommendation-5-26-2022/940), VaR has decreased from $827k to $694k. All of the VaR comes from two assets: LKSM and LCDOT. LKSM's VaR has decreased from $827k to $565k. LCDOT has a VaR of $98k. The other assets (KSM, KAR, DOT, ACA) all currently have VaR of $0.

Now that we have simulations of Acala assets, Gauntlet's models can elucidate which assets present the most market risk to Acala. DOT and ACA both show low insolvency risk and so can accommodate lower liquidation thresholds. LCDOT is relatively riskier, so a higher liquidation threshold can mitigate risk to the protocol. LKSM remains risky, so we recommend continuing to increase its liquidation threshold to further reduce insolvency risk.

**Dashboard:**

The community should use Gauntlet's Risk [Dashboard ](https://gov.gauntlet.network/acala) to understand better the updated parameter suggestions and general market risk in Acala.

*<sup>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.<sup>*

Gauntlet has made some recommendations to improve the risk and capital efficiency of Acala and Karura. They suggest increasing the liquidation ratio for LKSM and LCDOT and decreasing it for ACA and DOT. Gauntlet's simulations show that LKSM and LCDOT have the highest market risk, while DOT and ACA have low insolvency risk. The community can use Gauntlet's Risk Dashboard to understand these recommendations and market risk in Acala.

currencyId

interestRatePerSec

liquidationRatio

liquidationPenalty

requiredCollateralRatio

maximumTotalDebitValue

Gauntlet Risk Parameter Recommendation (6/2/2022)

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

**Karura Recommendations:**

* We recommend increasing LKSM’s liquidation ratio from 1.6 to 1.65.

**Rationale:**

Since last week, VaR has decreased from $2.3M to $827k. KAR’s VaR has decreased from $1.2M to $0, while LKSM’s VaR has decreased from $1.1M to $827k. KSM’s VaR remained at $0. All of the remaining insolvency risk is concentrated in LKSM, and our simulations indicate that increasing the LKSM liquidation ratio can further mitigate that risk with an acceptable tradeoff in capital efficiency.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to understand better the updated parameter suggestions and general market risk in Karura.

Here are the main points from the SubSquare post about Gauntlet's recommendations for Karura, simplified for a second-grade student:

- Gauntlet is giving advice to Karura to help them be safer with their money.
- They suggest making a small change to how much money they need to keep in reserve.
- This change will help reduce the risk of losing money if something bad happens.
- Gauntlet has a tool called a "Risk Dashboard" that people can use to see how safe Karura is.
- It's important for the community to pay attention to these recommendations to keep Karura's money safe.

Gauntlet Risk Parameter Recommendation (5/26/2022)

Untitled - financial motion #24

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

**Karura Recommendations:**

* We recommend lowering KSM’s minimum collateral ratio from 1.6 to 1.5.

**Rationale:**

Since our last recommendations, VaR has decreased from $3.0M to $2.8M. KAR’s VaR has decreased from $1.4M to $1.1M, while LKSM’s VaR has remained flat at $1.6M. KSM’s VaR rose slightly from $5k to $6k. With KSM’s VaR remaining so close to zero, our simulation engine shows that the capital efficiency gain by allowing users to take on KSM debt at a lower ratio more than offsets the slight increase in market risk.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to understand better the updated parameter suggestions and general market risk in Karura.

For a second-grade student:

- Gauntlet gave advice to Karura to make things safer and more efficient.
- They suggested lowering the minimum amount of money needed to borrow from 1.6 to 1.5.
- This would make it easier for people to borrow money and still be safe.
- Gauntlet used a special tool to see if this was a good idea and found that it was.
- People can check a special website to learn more about this advice and how to be safe when borrowing money.

Gauntlet Risk Parameter Recommendation (4/28/2022) 

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

**Karura Recommendations:**

* We recommend lowering the liquidation ratio for KSM from 1.3 to 1.25.

**Rationale:** Since our last recommendations, VaR has remained at $1.7M. KAR’s VaR rose from $233k to $784k, while LKSM’s VaR fell from $1.5M to $965k. KSM’s VaR remains at ~$0. We recommend lowering the KSM liquidation ratio to improve capital efficiency, as our simulations show it to have relatively low chances of insolvency.

Although our simulations show LKSM and KAR as having relatively higher chances of insolvency, we note that the protocol plans on incentivizing greater liquidity in the aUSD-KAR and aUSD-LKSM pools. We are not recommending higher liquidation thresholds as we expect the market risk to fall as liquidity rises. Our platform will continue to ingest on-chain data to inform how market risk evolves following changes in liquidity conditions.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to understand better the updated parameter suggestions and general market risk in Karura.

For a second-grade student:

- Gauntlet gave advice to Karura to make it safer and more efficient.
- They suggested lowering the liquidation ratio for KSM from 1.3 to 1.25.
- This will help Karura use its money better and have less chance of losing it.
- Gauntlet made simulations to see how safe Karura is and found that KSM is not very risky.
- People can use Gauntlet's Risk Dashboard to see how safe Karura is and what changes they should make.

Gauntlet Risk Parameter Recommendation (4/13/2022)

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

**Karura Recommendations:**

* We recommend lowering the minimum collateral ratio for KSM from 1.65 to 1.6.

**Rationale:** Since our last recommendations, Value at Risk (VaR) has remained at $1.7M. KAR’s VaR fell from $272k to $233k, while LKSM’s VaR rose from $1.4M to $1.5M. KSM’s VaR remains close to $0 despite having lowered its liquidation ratio twice last month. We recommend lowering the KSM collateral ratio so that users can mint more KSM-backed aUSD, which our simulations show has a low likelihood of increasing insolvency potential.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to understand better the updated parameter suggestions and general market risk in Karura.

Here are the main points from the SubSquare post about Gauntlet's recommendations for Karura:

- Gauntlet is giving advice to Karura about how to manage risk and capital efficiency.
- They suggest lowering the minimum collateral ratio for KSM from 1.65 to 1.6.
- This is because the Value at Risk (VaR) has stayed the same, but the VaR for KAR has gone down while the VaR for LKSM has gone up.
- By lowering the KSM collateral ratio, users can create more KSM-backed aUSD without increasing the risk of insolvency.
- The community can use Gauntlet's Risk Dashboard to learn more about these recommendations and market risk in Karura.

Gauntlet Risk Parameter Recommendation: Lower KSM Collateral Ratio

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 ](https://gov.gauntlet.network/karura) to better understand the updated parameter suggestions and general market risk in Karura.

For a second-grade student:

Gauntlet gave advice to Karura to make it safer and more efficient:

- They said to lower the amount of money needed to keep a loan safe.
- They also said to lower the amount of money needed to start a loan.
- They did this because they found out that Karura was less risky than before.
- They have a special tool called a "Risk Dashboard" to help people see how safe Karura is.
- People should use this tool to understand how to make Karura even better.

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 stability fee for KAR from 3% to 2.75%.
* We recommend lowering the liquidation ratio for KSM from 1.4 to 1.35.
* We recommend lowering the minimum collateral ratio for KSM from 1.8 to 1.7.

**Rationale:** Since we raised liquidation ratios and minimum collateral ratios for LKSM and KAR, VaR has stabilized at ~$2.5M, with $1.5M of that coming from the risk to LKSM and the remaining $1M coming from KAR. Our platform is continuing to ingest data on the risks to LKSM and KAR, and our analysis does not recommend further changes to their liquidation ratios at this time.

KSM, in contrast, has a VaR of 0, indicating low risk. Therefore we’re recommending a lower liquidation ratio and a lower minimum collateral ratio for KSM to improve capital efficiency.

Note that we recommend a lower value (2.75%) for KAR-backed CDPs than CDPs backed by other assets.

Lowering the stability fee can improve user engagement - a lower stability fee can incentivize kUSD minters to prefer using KAR over the other supported collateral types, as well as increase the total amount of kUSD debt outstanding, all else being equal.

In the ideal scenario, this increase in total kUSD minted would more than make up for the lower fee earned on KAR-backed kUSD debt, and, in fact, increase protocol revenue. But do note that this outcome will depend on the real world demand curve of kUSD with respect to the KAR Stability Fee, which can only be quantified empirically. Therefore, we should empirically validate these effects, of a lower KAR Stability Fee over time, before making larger deviations from the stability fee value for the other assets (3%).

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to better understand the updated parameter suggestions and general market risk in Karura.

Karura is a platform that needs to manage risk and capital efficiency. Gauntlet has made some recommendations to help with this. Here are the main points:

- They suggest lowering the stability fee for KAR from 3% to 2.75%.
- They recommend lowering the liquidation ratio for KSM from 1.4 to 1.35.
- They suggest lowering the minimum collateral ratio for KSM from 1.8 to 1.7.
- They explain that KSM has low risk, so they suggest making changes to improve capital efficiency.
- They suggest using Gauntlet's Risk Dashboard to understand the updated suggestions and market risk.

Gauntlet Risk Parameter Recommendations: Changes to KAR and KSM Parameters

Untitled - financial motion #18

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 ](https://gov.gauntlet.network/karura) to better understand the updated parameter suggestions and general market risk in Karura.


Here are the main points about changes in Karura's risk parameters:

- The minimum collateral for KAR has been increased from 1.8 to 1.9, and for LKSM from 2.0 to 2.1.
- The liquidation ratio for KAR has been increased by 1%, and for LKSM by 2%.
- These changes will be repeated every 2250 blocks for a total of 5 times.
- The reason for these changes is to reduce the risk of insolvency for both KAR and LKSM due to high market volatility.
- Gauntlet has provided recommendations based on economic simulations to optimize for risk and capital efficiency.

Recommendations: Raising Liquidation Ratios and Collateral Ratios

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

**Karura Recommendations:**

* Raise the minimum collateral ratio for LKSM from 1.9 to 2.0.
* Lower the minimum collateral ratio for KSM from 1.9 to 1.8.
* Lower the liquidation ratio for KSM from 1.5 to 1.4.

**Rationale:** 

Since last week, VaR (Value at Risk) has increased from $1.77M to $2.41M, with 71.2% coming from LKSM, 28.8% from KAR, and 0% from KSM. kUSD issuance is up slightly from 5.6M to 5.7M. KSM annualized volatility is up slightly from 119% to 122%. The 7-day $ADV is down from $31.6M last week to $17.8M today.

Our economic risk simulations show a high potential for insolvency in LKSM if volatility were to double or triple from its current levels. Raising the minimum collateral ratio will prevent users from taking on additional risk. KSM has the opposite issue: there are zero insolvencies in any of our sims at any level of volatility. This is a sign that it is safe to lower collateral and liquidation ratios to improve capital efficiency.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to better understand the updated parameter suggestions and general market risk in Karura.

For a second-grade student:

- Karura is a place where people can borrow and lend digital money.
- A company called Gauntlet looked at the risks and suggested some changes to make it safer and more efficient.
- They suggested that people who borrow one type of digital money should have more of another type of digital money to keep it safe.
- They also suggested that the amount of money needed to be safe for one type of digital money can be lowered.
- People can see how safe Karura is by looking at Gauntlet's Risk Dashboard.

Risk Parameter Update for LKSM and KSM

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

**Karura Recommendations:**

* Raise LKSM’s minimum collateral ratio to 1.9.

**Rationale:** 

The current Value at Risk (VaR) is $1.57M, with 77.1% of that coming from LKSM. Looking at the heatmap of sim runs for LKSM shows that our economic simulations predict non-zero insolvent liquidations at volatilities just 50% above the current measured volatility of LKSM. This primarily is driven by three reasons: (1) many current borrowers have collateral ratios close to the liquidation threshold, (2) price volatility has been relatively high recently, and (3) liquidity is relatively low (the value in the KSM/LKSM pool has fallen from $3.64M on January 26th to $3.37M today). Low liquidity implies high slippage, which can turn individual liquidations into a liquidation cascade. As you can see in the heatmap, with higher volatilities we see more insolvencies.

Raising the minimum collateral ratio prevents users from taking on or updating positions to collateral ratios that are likely to get caught in a liquidation cascade.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard](https://gov.gauntlet.network/karura) to better understand the updated parameter suggestions and general market risk in Karura.

![Screen Shot 2022-02-02 at 10.03.13 AM|539x427](upload://w302X2Ayq4FJvWWpiY2YMExhxE0.png)

https://acala.discourse.group/t/gauntlet-risk-parameter-recommendations-raise-lksm-collateral-ratio-to-1-9/655

For a second-grade student:

- Gauntlet is giving advice to Karura to make it safer and more efficient.
- They suggest raising the minimum amount of money people need to have as collateral to borrow money.
- This is because there is a risk that people might not be able to pay back the money they borrowed.
- Gauntlet has a dashboard that people can use to see how risky it is to borrow money in Karura.
- By following Gauntlet's advice, Karura can be safer for people who want to borrow money.

Raise LKSM Collateral Ratio to 1.9

Untitled - financial motion #13

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

**Summary:**

* Reduce the minimum collateralization ratio of KAR from 1.9 to 1.8.

**Rationale:** 

Since last week, KSM volatility has increased from 86% to 98% and the $ADV decreased from $30.7M to $28.6M. The kUSD minted decreased from $9.0M to $8.9M. The Value at Risk increased from $0.30M to $2.2M. Breaking down the VaR further, all of it comes from the possibility of insolvent liquidations of KSM, not KAR. Our platform's analysis shows that we can safely take a more aggressive stance with respect to KAR to raise capital efficiency while keeping risks within acceptable limits.

**Dashboard:**

The community should use Gauntlet’s Risk [Dashboard ](https://gov.gauntlet.network/karura) to better understand the updated parameter suggestions and general market risk in Karura.

https://acala.discourse.group/t/gauntlet-risk-parameter-recommendations-lowering-kar-collateral-ratio/562

Here's a summary of the SubSquare post about Gauntlet's recommendations for Karura:

- Gauntlet has some suggestions to make Karura safer and more efficient.
- They recommend reducing the minimum collateralization ratio of KAR from 1.9 to 1.8.
- This is because KSM volatility has increased and the kUSD minted has decreased.
- Gauntlet's analysis shows that this change will raise capital efficiency while keeping risks within acceptable limits.
- The community can use Gauntlet's Risk Dashboard to understand these suggestions and market risks in Karura.

Lowering KAR Collateral Ratio 

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

**Summary:**

* Raise the debt ceiling for KAR to 3M

**Rationale:**

Since last week, KSM volatility has decreased from 138% to 101% and the $ADV decreased from $41.8M to $30.4M. The kUSD minted decreased from $10.3M to $9.8M. The Value at Risk decreased from $2.45M to $2.41M. The protocol is safe at its current parameters.
Just over 1M kUSD has been minted with KAR as collateral. KAR currently has a VaR of 0 and our platform’s analysis shows that it is safe to raise the debt ceiling ahead of future growth.

Governance forum post: https://acala.discourse.group/t/gauntlet-risk-parameter-recommendations-raising-kar-debt-ceiling/481/2

For a second-grade student:

- Gauntlet made recommendations for Karura to be safe and efficient.
- They suggested raising the debt ceiling for KAR to 3M.
- KSM volatility decreased and the protocol is safe at its current parameters.
- KAR has a VaR of 0 and it's safe to raise the debt ceiling for future growth.
- Gauntlet posted their recommendations on the governance forum.

Financial Motions