Simple Summary
Gauntlet recommends an update to the risk parameters for ATOM and stATOM. For ATOM, we don’t recommend any changes. For stATOM, we recommend reducing the liquidation ratio from 160% to 150% and the collateral ratio from 170% to 160%.
ATOM:
- No change in parameter updates
stATOM:
- Decrease stATOM minimum collateral ratio from 170% to 160%.
- Decrease stATOM liquidation ratio from 160% to 150%.
ATOM Analysis
Osmosis DEX Liquidity on Jan 15, 2024
| Markets | 24-hour volume | 2% Depth (USD) | 10% Depth (USD) |
|---|---|---|---|
| ATOM/OSMO | $3MM | $400K | $1.2MM |
The 2% depth for ATOM has decreased from $500k in Dec 15th, 2023 to $400k on Jan 15th, 2024. The utilization of ATOM remains low at 0.2%.
We are not proposing any changes to ATOM’s parameters as we see slightly lower liquidity and the same utilization.
stATOM Analysis
stATOM Liquidity on Dec 11th:
| Dex | Markets | Total Liquidity | 2% Depth (USD) | 10% Depth (USD) |
|---|---|---|---|---|
| Osmosis | stATOM/ATOM | $15MM | $1.1MM | $1.6MM |
| Astroport | stATOM/ATOM | $3MM | $42,000 | $265,000 |
stATOM Liquidity on Jan 15th:
| Dex | Markets | Total Liquidity | 2% Depth (USD) | 10% Depth (USD) |
|---|---|---|---|---|
| Osmosis | stATOM/ATOM | $15MM | $2MM | $2.3MM |
| Astroport | stATOM/ATOM | $3MM | $40,000 | $255,000 |
stATOM liquidity has improved since our last parameter recommendation update. On Osmosis, the 2% depth has increased from $1.1MM on Dec, 2023 to $2MM on Jan, 2024.
The table below estimates insolvencies from a simulation based on historical data. This simulation employs a high-risk scenario observed during the $stATOM price drop in May 2022, which recorded a 55% drawdown over three days. We modeled the price drawdown for $stATOM in this scenario, with the supplementary assumption that liquidators could liquidate 50% of the collateral at each time step. The simulation is tailored to the vault’s current collateral and mint amount.
The heat map also includes drawdowns for cases that are higher than 55% drawdowns as well.
In a more lenient assumption, we could assume that the entire position will be liquidated in a single atomic transaction. In this case, we have the following insolvencies by liquidation ratio.
Insolvencies by drawdown and liquidation ratio for $stATOM: Each time step liquidates 100% of the supplied collateral.
The current stATOM vaults have a total of $531k minted IST. If we experience a 55% price drawdown, we expect approximately $531k of stATOM to be liquidated to cover the debt with a liquidation ratio of 1.6. This is because our current collateral ratio is around 310% on average. For example, wallet 17 currently holds $402k of IST mint and it is at a collateral ratio of 332%. It will be liquidated if the stATOM price drops 55% when liquidation ratio is at 1.6. Based on the liquidity data from Osmosis, we could liquidate $531k of stATOM without significant slippage (2%). Since stATOM has high liquidity currently with $2MM at 2% market depth, we don’t expect significant slippage as the IST mint amount increases towards the current limit.
stATOM Recommendation
stATOM Liquidation Ratio
Gauntlet recommends decreasing the liquidation ratio from 160% to 150% to further incentivize Inter Protocol growth. With a 150% liquidation ratio, we could see a $193 insolvency with a 55% drawdown with a 100% liquidation size and a $717 insolvency with a 55% drawdown and a 50% liquidation size.
The Inter Protocol currently has $75k in reserve as of Jan 15, 2024. This reserve can help offset the insolvency. The maximum insolvency coming from the liquidation ratio should be below the $75k reserve Inter Protocol currently has.
stATOM Minimum Collateral Ratio
Gauntlet proposes lowering the minimum collateral ratio from 170% to 160% to boost demand for the protocol. The calculation formula is the same as the one showed above for ATOM.
For this calculation, we have a minimum collateral ratio of
stATOM Mint Limit
Given the above analysis, Gauntlet recommends keeping the mint limit at $2MM. The current utilization rate of the protocol is ~30%. We don’t recommend making any changes to the mint limit until the utilization rate is above 60%.
Next Steps
We welcome community feedback and preference on the recommended parameter changes.
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