# 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:** 1\ **Showing post:** 3
**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) * * * --- _[View the full topic](https://forum.moonwell.fi/t/mip-61-gauntlet-risk-parameter-recs-for-artemis-2023-07-11/534)._