# MIP 61 Gauntlet Risk Parameter Recs for Artemis 2023-07-11 **URL:** \ **Category:** Ideation & Discussion\ **Tags:** moonbeam\ **Created:** [July 11, 2023, 9:59pm UTC](https://forum.moonwell.fi/t/mip-61-gauntlet-risk-parameter-recs-for-artemis-2023-07-11/534 "2023-07-11T21:59:42Z")\ **Posts on this page:** 2\ **Page:** 1
**Author:** ![delz](https://dub1.discourse-cdn.com/flex017/user_avatar/forum.moonwell.fi/delz/32/453_2.png) [@delz](https://forum.moonwell.fi/u/delz)\ **Post date:** [July 11, 2023, 9:59pm UTC](https://forum.moonwell.fi/t/mip-61-gauntlet-risk-parameter-recs-for-artemis-2023-07-11/534/1 "2023-07-11T21:59:42Z")
# Simple Summary A proposal to adjust 4 risk parameters across 2 assets: | Parameter | Current Value | Recommended Value | | --- | --- | --- | | xcUSDT Collateral Factor | 55% | 60% | | xcUSDT Borrow Cap | 1,300,000 | 1,400,000 | | USDC.wh Collateral Factor | 64% | 66% | | USDC.wh Borrow Cap | 3,000,000 | 3,300,000 | * * * ## Rationale: VaR is $1.4k and our recommendations will leave it unchanged. Our recommendations will increase LaR from $777k to $786k. xcUSDT and USDC.wh are relatively safe from a market risk perspective, so we increased their collateral factor to improve capital efficiency. WETH.wh, WGLMR, WBTC.wh, FRAX, and xcDOT’s collateral factors are effectively balancing risk and capital efficiency. Based on our risk model, the present collateral usage of xcUSDT and USDC.wh allows for an increase in CF without increasing estimated insolvencies. #### USDC.wh and xcUSDT Collateral Usage ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/8d0c0496c7767afa1cfe2fc0c9efce1b117f27fe.png) For USDC.wh and xcUSDT, we recommend increasing borrow caps based on stable DEX on-chain liquidity, increased demand on the protocol, and users’ recursive positions within these assets. As we make recommendations through our risk models, we keep a constant check on the market liquidity and concentration risk to the Artemis protocol. In this regard, we would like to present some key liquidity figures for Artemis assets to share with the community. Since our last post, liquidity has increased for non-stablecoins. | Asset | Concentration Risk | Total Circulating Supply | 25% Depth | 25% Depth USD | 25% Depth on June 8th | | --- | --- | --- | --- | --- | --- | | ETH.wh | 92% | 1,822 | 75 | $140,750 | 55 | | USDC.wh | 21% | 3,783,086 | 1,100,000 | $1,100,000 | 1,250,000 | | WBTC.wh | 96% | 183 | 5 | $150,987 | 4 | | xcUSDT | 20% | 1,607,704 | 1,100,000 | $1,100,000 | 1,500,000 | | xcDOT | 27% | 1,285,417 | 27,000 | $137,160 | 18,000 | | FRAX | 22% | 5,319,872 | 1,100,000 | $1,100,000 | 1,500,000 | \*Concentration Risk represents the percentage of token supply held by Artemis. #### Moonbeam 2% Market Depth for non-Stables ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/9d69757bab14e86ca1833e346deb48c04194c36e.jpeg) ## Methodology This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets. Gauntlet’s parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Parameter recommendations seek to optimize for this objective function. Our agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet’s simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. As such, the input metrics we show below can help understand why some of the param recs have been made but should not be taken as the only reason for recommendation. To learn more about our methodologies, please see the Helpful Links section at the bottom. ## Supporting Data The below figures show trends on key market statistics regarding borrows and utilization that we will continue to monitor: ### Top 10 Borrowers’ Aggregate Positions & Borrow Usages ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/c8857415c246c5153f38ebc491fb5beb445962ac.png) ### Top 10 Borrowers’ Entire Supply ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/656071c98438ca55978f98e24c3fc107a19d3f53.png) ### Top 10 Borrowers’ Entire Borrows ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/d1f07dfaec98e1b34094e973dce8f4b6fdc102b2.png) ### Utilization Rate of Assets - Timeseries ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/5fc9508d97e8d8a5abacbc7d537942acb4f9d1ac.png) _[Link](https://risk.gauntlet.network/protocols/moonwell/markets/artemis?fullscreen=utilization_rate_timeseries) to chart_ ### Borrow Cap Utilization ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/f870a0adb0d4b0b2bb047615ffe3f3787622bd08.png) ## Risk Dashboard The community should use [Gauntlet’s Artemis Risk Dashboard](https://risk.gauntlet.network/protocols/moonwell/markets/artemis/recommendations) to better understand the updated parameter suggestions and general market risk in Artemis. Value at Risk represents the 95th percentile **insolvency value** that occurs from simulations we run over a range of volatilities to approximate a tail event. Liquidations at Risk represents the 95th percentile **liquidation volume** that occurs from simulations we run over a range of volatilities to approximate a tail event. ![](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/075748b64c6ee5a24fd0b896681e922621c3e9af.png) ## Quick Links _Please click below to learn about our methodologies:_ [Gauntlet Parameter Recommendation Methodology](https://medium.com/gauntlet-networks/gauntlets-parameter-recommendation-methodology-8591478a0c1c) [Gauntlet Model Methodology](https://medium.com/gauntlet-networks/gauntlets-model-methodology-ea150ff0bafd) _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._ ## Next Steps This will be put up for an on-chain vote by July 12th. ---
**Author:** ![WardenFinance](https://dub1.discourse-cdn.com/flex017/user_avatar/forum.moonwell.fi/wardenfinance/32/427_2.png) [@WardenFinance](https://forum.moonwell.fi/u/WardenFinance)\ **Post date:** [July 14, 2023, 5:56pm UTC](https://forum.moonwell.fi/t/mip-61-gauntlet-risk-parameter-recs-for-artemis-2023-07-11/534/3 "2023-07-14T17:56:11Z")
# Review of [MIP 61] Risk Parameter Updates for Artemis (2023-07-12) ## Summary ### Proposal assessment We support Gauntlet’s proposal of increasing the collateral factor and borrow caps of both xcUSDT and USDC.wh. | Parameter | Current value | Recommended value | | xcUSDT Collateral Factor | 55% | 60% | | xcUSDT Borrow Cap | 1,300,000 | 1,400,000 | | USDC.wh Collateral Factor | 64% | 66% | | xcUSDC Borrow Cap | 3,000,000 | 3,300,000 | Based on our analysis we think the proposed changes are appropriate and pass our parameter robustness review. ### Additional Recommendations 1. We also recommend updating the IRM for FRAX in order to keep rates in line with comparable markets and decrease utilization to more optimal levels. | Symbol | Base rate | Multiplier | Kink | Jump multiplier | | FRAX | 0 | **0.05** → **0.0625** | 0.8 | 0.25 | 1. We also recommend setting the xcUSDT borrow cap higher than recommended by Gauntlet to accommodate the market’s borrowing demand for xcUSDT. | Symbol | Actual | Gauntlet recommendation | Warden recommendation | | xcUSDT | 1,300,000 | 1,400,000 | **1,600,000** | ## Key Observations 1. Utilization for FRAX has been constantly over the kink utilization rate (\>80%) for the last 90 days. 2. Onchain liquidity for key assets in the Moonbeam ecosystem has improved over the last 30 days. This is due to a significant increase in liquidity for key DEX pools holding WELL, GLMR, ETH.wh and xcDOT. ![image](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/23e06a682f5fc82ccb8dacef5a3227de88fbc1e5.jpeg) 1. Recent onchain liquidity increase for WELL and GLMR is most likely the consequence of very attractive WELL rewards for WELL / GLMR LPs on StellaSwap v2. ![image](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/cd2d15556d26cc0bef4bc7fc89102a0d8b2e1ff8.png) ## Robustness Analysis Our analysis tests the robustness of all of the following changes proposed by Gauntlet: | Symbol | Parameter | Current | Recommended | | xcUSDT | Collateral Factor | 55% | 60% | | xcUSDT | Borrow Cap | 1,300,000 | 1,400,000 | | USDC.wh | Collateral Factor | 64% | 66% | | USDC.wh | Borrow Cap | 3,000,000 | 3,300,000 | ### xcUSDT Collateral Factor Increase Gauntlet’s recommendation: | Symbol | Parameter | Current | Recommended | | xcUSDT | Collateral Factor | 55% | 60% | * * * **Test** : The collateral factor gives the protocol sufficient room to wait for 1 hour to execute a liquidations profitably without incurring bad debt even if the asset price decrease by the historical max drawdown **Results** : **🟢 Pass** Suggested collateral factor factor provides 28.92% more buffer than minimal requirement. > **Details** > > **Methodology:** Validate that (1 - collateral factor) covers the sum of following values at minimum > > - Max drawdown (1h) > - Liquidation incentive > > **Results** > > - Max drawdown (1h) = -1.08% > - Liquidation incentive = 10% > - Required buffer = 11.08% > - Proposed buffer = (1 - collateral factor) = 40% (2892 bps more than 11.08%) > > **References** > Source: [xcUSDT Token Dashboard](https://www.warden.finance/tokens/xcUSDT?chain=1284) > > xcUSDT volatility > > ![xcusdt-volatility](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/0f94391e81a9b1c99ddc506f8bcd5ea3658b87e5.png) * * * **Test** : Parameter change doesn’t make any account liquidatable **Results** : **🟢 N/A** Does not apply to CF increase * * * **Test** : Parameter changes do not increase market risk exposure beyond desired level **Results** : **🟢 N/A** Does not apply to CF increase * * * ### xcUSDT Borrow Cap Increase Gauntlet’s recommendation: | Symbol | Parameter | Current | Recommended | | xcUSDT | Borrow Cap | 1,300,000 | 1,400,000 | * * * **Test** : Protocol short exposure to underlying assets is manageable **Results** : **🟢 Pass** Debt position of 20% of borrow cap could be theoretically liquidated > **Details** > > **Methodology:** For every market, all of the following trades can be executed with under 5% slippage > > - #1 Buy 20% of xcUSDT borrow cap from stables > - #2 Liquidate the largest xcUSDT debt position > > **Results** > > Test case #1: Slippage to purchase 20% of xcUSDT borrow cap: > > - 20% of borrow cap = 280,000 xcUSDT > - 🟢 Slippage to buy $280k xcUSDT from stables = \<1% > > Tests case #2: Slippage to liquidate the largest xcUSDT debt position: > > - Largest debt position: $193.8k ([0xb554…1dab](https://www.warden.finance/accounts/0xb554b9856dfdbf52b98e0e4d2b981c34e20e1dab)) > - 🟢 Slippage to buy $193.8k xcUSDT from position collateral (xcUSDT) = 0% > - Note: Account is holding a recursive strategy which doesn’t pose significant liquidity risk as-is. Even supposing a case where the account was holding a collateral position in an uncorrelated currency (i.e GLMR), the position could still be liquidated very quickly. > > **References** > [xcUSDT Token Dashboard](https://www.warden.finance/tokens/xcUSDT?chain=1284) > > Historical TVL for pools holding xcUSDT > > ![xcusdt-historical-liquidity](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/ad9f3ce193f77121275fdf1971762ddfd85a8266.png) > > Slippage to buy xcUSDT from uncorrelated collateral-tier asset > > ![xcusdt-buy-for-glmr-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/ad4cfa44b89e9d6049a53867a32f32945712711e.png) > > Slippage to buy xcUSDT from stable asset > > ![xcusdt-buy-from-stable-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/dc6193e8cd83eb0a2dca672a1c44d26850e4745c.png) > > Slippage to sell xcUSDT for uncorrelated collateral-tier asset > > ![xcusdt-sell-for-glmr-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/af9acc947b6776942562f62ba055a754739033a2.png) > > Slippage to sell xcUSDT for stable asset > > ![xcusdt-sell-for-stable-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/fe4f1d4f985b3d9a57a454955b43e8d93bca4866.png) * * * ### USDC.wh Collateral Factor Increase Gauntlet’s recommendation: | Symbol | Parameter | Current | Recommended | | USDC.wh | Collateral Factor | 64% | 66% | * * * **Test** : The collateral factor gives the protocol sufficient room to wait for 1 hour to execute a liquidations profitably without incurring bad debts even if the asset price decrease by the historical max drawdown **Results** : **🟢 Pass** Suggested collateral factor provides 17.32% more buffer than minimal requirement > **Details** > > **Methodology:** Validate that (1 - collateral factor) covers the sum of following values at minimum > > - Max drawdown (1h) > - Liquidation incentive > > **Results** > > - Max drawdown (1h) = -5.32% > - Liquidation incentive = 10% > - Required buffer = 15.32% > - Proposed buffer = (1 - collateral factor) = 34% > > **References** > Source: [USDC.wh Token Dashboard](https://www.warden.finance/tokens/USDC.wh?chain=1284) > > USDC.wh volatility > > ![image](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/808d11bb73b7c12d226adaaca811959ac1cda0d3.png) * * * **Test** : Parameter change doesn’t make any account liquidatable **Results** : **🟢 N/A** Does not apply to CF increase **Test** : Parameter changes do not increase market risk exposure beyond desired level **Results** : **🟢 N/A** Does not apply to CF increase ### USDC.wh Borrow Cap Increase Gauntlet’s recommendation: | Symbol | Parameter | Current | Recommended | | USDC.wh | Borrow Cap | 3,000,000 | 3,300,000 | * * * **Test** : Protocol short exposure to underlying assets is manageable **Results** : **🟢 Pass** Debt position of 20% of borrow cap could be theoretically liquidated > **Details** > > **Methodology:** For every market, all of the following trades can be executed with under 5% slippage > > - #1 Buy 20% of USDC.wh borrow cap from stables > - #2 Liquidate the largest USDC.wh debt position > > **Results** > Test case #1 Slippage to purchase 20% of USDC.wh borrow cap: > > - 20% of borrow cap = 755.86k USDC.wh > - 🟢 Slippage to buy $755.63k USDC.wh from stables = \<1% > > Tests case #2 Slippage to liquidate the largest USDC.wh debt position: > > - Largest debt position: 755.86k USDC.wh ([0xb554…1dab](https://www.warden.finance/accounts/0xb554b9856dfdbf52b98e0e4d2b981c34e20e1dab)) > - 🟢 Slippage to buy 755.86k USDC.wh from account main collateral (USDC.wh) = 0% > - 🟡 Slippage to buy 755.86k USDC.wh from other collateral in account (ETH.wh) = 5% in chunks of $63k > - Note: Account is holding a recursive strategy which doesn’t pose significant liquidity risk as-is. However, supposing a case where the account would get liquidated by seizing its ETH.wh collateral, the liquidation could require a significant amount of time to execute profitably. > > **References** > Source: [USDC.wh](https://www.warden.finance/tokens/USDC.wh?chain=1284) > > Historical TVL for pools holding USDC.wh > > ![usdcwh-historical-liquidity](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/8898ee8c68a055b3499ba876e866a45ce67e29bc.png) > > Slippage to buy USDC.wh from uncorrelated collateral-tier asset > > ![usdcwh-buy-glmr-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/2879a14b4bec35dddf6979d7bf6dd36281fdc8d4.png) > > Slippage to buy USDC.wh from stable asset > > ![usdcwh-buy-stable-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/b1a58016df3ab9c123f31377733d65557dd25f47.png) > > Slippage to sell USDC.wh for uncorrelated collateral-tier asset > > ![usdcwh-sell-glmr-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/020b34bf55851d16a3f0c65467f3fecf4fc64855.png) > > Slippage to sell USDC.wh for stable asset > > ![usdcwh-sell-stable-slippage](https://europe1.discourse-cdn.com/flex017/uploads/moonwell/original/1X/2544c7d986086aa7e02a12ebd62c9f54e753ba0e.png) * * *