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
- 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 |
- 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
-
Utilization for FRAX has been constantly over the kink utilization rate (>80%) for the last 90 days.
-
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.
- StellaSwap v2 WELL / GLMR: $360k → $950k (+263%)
- StellaSwap v2 GLRM / xcDOT: $122k → $357k (+292%)
- StellaSwap v3 ETH.wh / GLMR: $190k → $370k (+194%)
- 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.
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
xcUSDT volatility
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)
- 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
Historical TVL for pools holding xcUSDT
Slippage to buy xcUSDT from uncorrelated collateral-tier asset
Slippage to buy xcUSDT from stable asset
Slippage to sell xcUSDT for uncorrelated collateral-tier asset
Slippage to sell xcUSDT for stable asset
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
USDC.wh volatility
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)
- 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
Historical TVL for pools holding USDC.wh
Slippage to buy USDC.wh from uncorrelated collateral-tier asset
Slippage to buy USDC.wh from stable asset
Slippage to sell USDC.wh for uncorrelated collateral-tier asset
Slippage to sell USDC.wh for stable asset
