Gauntlet Recommendations Update: Inter Protocol - stkATOM (01/08/24)
Background
Gauntlet has updated the stkATOM’s parameters based on the new asset liquidity available. Thanks @bartv for sharing that stkATOM’s liquidity will increase meaningfully on Osmosis and Astroport.
Summary
If the community would like to list stkATOM, Gauntlet presents the following updated options for risk parameters: Minimum Collateral Ratio, Liquidation Ratio, and Mint Limit. The two options offer different mint limits. The community can decide which option is better suited for their needs.
Major markets for stATOM on Jan 04, 2024
| Markets | Liquidity (USD) | 2% Depth (USD) | 10% Depth (USD) | 24 Hr Volume (USD) |
|---|---|---|---|---|
| Osmosis - stkATOM/ATOM | $480K | $20k | $40k | $5100 |
| Shade Protocol | $100K | $2000 | $5000 | $3000 |
| Astroport | $3.73MM | $48,000 | $240,000 | n/a |
| Dexter | $3.58MM | $450,000 | n/a | n/a |
On top of the existing market, there is going to be an additional liquidity of $3.58M from Persistence Chain, and $3.73M (Neutron) on Astroport. This will increase the current liquidity in the market significantly.
Option 1
| Parameter | stkATOM |
|---|---|
| Minimum Collateral Ratio | 180% |
| Liquidation Ratio | 170% |
| Mint Limit | $600,000 |
We recommend to start with a Mint Limit of $600,000 due to an increase to stkATOM’s liquidity. We will monitor the stkATOM’s liquidity on a weekly basis and propose new mint limit if the liquidity improves.
Option 2
| Parameter | stkATOM |
|---|---|
| Minimum Collateral Ratio | 170% |
| Liquidation Ratio | 160% |
| Mint Limit | $400,000 |
This option provide a lower mint limit based on stkATOM’s limited liquidity currently in the pool. With a lower mint limit, the protocol could reduce the insolvency in a worsening scenario due to the slippage. We will monitor the stkATOM’s liquidity on a weekly basis and propose new mint limit if the liquidity improves.
It’s important to note if it is required for the protocol to increase the liquidation ratio or lower the mint limit to minimize risk, this action can result in a poor user experience. Therefore, relaxing the parameters should be done gradually over time as the market evolves and liquidation mechanisms are thoroughly tested.
General Recommendation
| Parameter | stkATOM |
|---|---|
| Stability Fee | 0.75% |
| Liquidation Penalty | 10% |
| Minting Fee | $0 |
| Minimum Initial Debt | $50 |
Recommendations
By integrating stkATOM, lnter can unlock the liquidity of staked assets, allowing users to leverage their staked ATOM without needing to unstake. This enhances the overall liquidity of the ecosystem. Also, stkATOM holders gain additional utility for their assets beyond staking rewards. They can use stkATOM as collateral for loans, gaining access to liquidity while still earning staking rewards. They can use stkATOM as collateral for loans, gaining access to liquidity while still earning staking rewards.
The Osmosis DEX allows for swapping stkATOM to any assets on Osmosis. We expect the liquidity will increase significantly when stkATOM is ready to launch as more stkATOM deposits will be available. If the community would like to list the asset, we recommend the following parameters.
Parameters
General Recommendations
Stability Fee → 0.75%
Gauntlet suggests setting the initial Stability Fee to 0.75% (same as ATOM and stATOM), which could help promote growth as Kurija offer their stable coin at 1%.
Liquidation Ratio
We derive the liquidation ratio based on our heuristic worst-case scenario simulation. Based on the historical data, we have seen a maximum of ~40% draw down on ATOM in the past 2 years, and this represents the worst-case scenario in our analysis. We ran a hypothetical scenario simulation which is one user maxing out the Mint Limit, with a low collateralization ratio (at the point of getting liquidated). Based on the heuristic simulation result, we ensure the protocol would remain low insolvency in the event of a 40% daily drawdown.
Mint Limit
The mint limit is the maximum amount of IST that can be minted across all stkATOM-backed vaults. We have two options, one recommended an initial value of $600,000 and another at $400,000 at the recommended Liquidation Ratio. We are assuming that the vault will reach an utilization rate (borrowed amount divided by mint limit) of 20-25% within a month of launching. The potential borrowed amount would be between $80k to $150k. We recommend to start with a low mint limit and gradually increase it. As the protocol attracts more stkATOM collateral and grows the liquidity volume, Guantlet can recommend increasing the mint limit on a weekly basis based on the latest data.
Next Steps
We welcome community feedback and preference on the two options.
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