To guide best practices for the Community, Gauntlet aims to provide a standard framework for assessing market risk when listing assets and enabling assets as collateral. Managing collateral listings is essential to the growth of the protocol. As new assets in DeFi proliferate and older assets fall out of favor, Acala/Karura must list and delist assets to maintain its usefulness as a protocol. Given 2 weeks of notice and strong community buy-in, Gauntlet will conduct risk assessments prior to new assets being listed.
This framework is focused specifically on market risk and how Gauntlet will support the asset listing process in Acala/Karura.
Throughout the asset listing and collateral enablement processes, Gauntlet's goal is to ensure that insolvency and liquidity risks are minimized and that when liquidations occur, they can be done so healthily with incentivized liquidators. In order to be unbiased, Gauntlet will not explicitly support any asset listing but instead provides the below framework as guidance for the community.
Gauntlet will assess a given asset's liquidity and other market characteristics to be added to the protocol. We ask that the party putting forward the proposal for asset listing include the following data:
Gauntlet will relay our findings to the community and make parameter recommendations for Minimum Collateralization Ratio, Liquidation Threshold, Liquidation Penalty, and Debt Ceiling.
Our goal with this initial analysis is to ensure that liquidations will be feasible with the amount of collateral and stablecoins expected to be added initially.
The Liquidation Penalty is more straightforward on the initial listing. We generally recommend 15% for non-stablecoin assets. Liquidation penalty will be tuned post listing via our simulation engine after seeing multiple weeks of data.
In general, it is prudent to err on the conservative side for Debt Ceiling, as it can minimize losses in an infinite mint attack (and other attacks like oracle manipulation) as well as being a direct lever to minimize exposure to a given asset.
Gauntlet’s goal with setting the Debt Ceiling on initial listing is to predict the estimated collateral locked in Acala/Karura in a mature state and then be conservative to ensure that there are no unforeseen technical risks that cause protocol failure or outsized insolvencies.
In particular, Gauntlet will set Debt Ceiling in the following way: