# Moonbeam Recommendations (2024-01-02)

## Simple Summary

A proposal to adjust 4 total risk parameters:

| Parameter | Current Value | Recommended Value |
| -------- | -------- | -------- |
| xcDOT Collateral Factor | 60% | 58% |
| USDC.wh Reserve Factor | 15% | 20% |
| xcUSDT Reserve Factor | 15% | 20% |
| xcUSDC Reserve Factor | 15% | 20% |

A proposal to make a IR curve adjustments for xcUSDC, xcUSDT, and USDC.wh:

| xcUSDC IR Parameters | Current | Recommended |
| -------------------- | ------- | ----------- |
| BASE | **0.02** | **0** |
| Kink | 0.8 | 0.8 |
| Multiplier | **0.1** | **0.075** |
| Jump Multiplier | **1.9** | **6.0** |

| xcUSDT IR Parameters | Current | Recommended |
| -------------------- | ------- | ----------- |
| BASE | 0 | 0 |
| Kink | 0.8 | 0.8 |
| Multiplier | **0.065** | **0.075** |
| Jump Multiplier | **4.0** | **6.0** |

| USDC.wh IR Parameters | Current | Recommended |
| -------------------- | ------- | ----------- |
| BASE | 0 | 0 |
| Kink | 0.8 | 0.8 |
| Multiplier | **0.065** | **0.075** |
| Jump Multiplier | **4.75** | **6.0** |

---
# Rationale:

## Risk Parameters

Our recommendations have an estimated VaR at $0 and remains unchanged. LaR decreased to $836k from $856k with our current recommendations. Based on simulation results, Gauntlet recommends decreasing the collateral factors for xcDOT in order to mitigate risk to the protocol. The collateral factors for WGLMR, WBTC.wh, xcUSDT, WETH.wh, and USDC.wh effectively balance risk with capital efficiency.

#### Frax Liquidity Pool
As mentioned in previous forum [post](https://forum.moonwell.fi/t/frax-liquidity-on-moonbeam-analysis-recommendations/709), the FRAX market is experiencing a liquidity issue that the community is working to resolve. Gauntlet has put up previous proposals to mitigate the impact from the high utilization and we continue to monitor the market as the community works through the [roadmap](https://forum.moonwell.fi/t/roadmap-for-the-moonwell-community-on-nomad-incident-recovery/732) on the Nomad Incident Recovery.

#### xcDOT Top Supply Positions

4 out 5 of the top suppliers of xcDOT have borrow usage below 60%.

Gauntlet recommends decreasing the collateral factor for xcDOT from 60% to 58%. This decrease to collateral factor should not impact any users or cause any liquidations.

#### Moonbeam Liquidity
As we make recommendations through our risk models, we keep a constant check on the market liquidity and concentration risk to the Moonbeam protocol. In this regard, we would like to present some key liquidity figures for Moonbeam assets to share with the community. Since our last post, liquidity has decreased across all listed assets.

| Asset | Borrow Cap Relative to Supply | Total Circulating Supply | 25% Depth Token | 25% Depth USD | 25% Depth Token - Prev Month |
| ------- | ----------------------------- | ------------------------ | --------- | ------------- | ---------------------- |
| WETH.wh | 20% | 2,517 | 25 | $55,724 | 19 |
| USDC.wh | 80% | 2,983,792 | 135,000 | $135,000 | 180,000 |
| WBTC.wh | 26% | 192 | 1.4 | $58,499 | 1.5 |
| xcUSDT | 136% | 957,399 | 140,000 | $140,000 | 145,000 |
| xcDOT | 91% | 936,083 | 27,000 | $150,390 | 18,000 |
| FRAX | 99% | 5,319,872 | 140,000 | $140,000 | 145,000 |
| WGLMR\* | 184% | 12,252,369 | 500,000 | $148,589 | 400,000 |

<sub>*WGLMR circulating supply doesn't include non-wrap tokens.

## IR Parameters

#### USDC.wh and xcUSDT Utilization
<!--- https://app.mode.com/editor/gauntlet/reports/cd21c579bcff/viz/29d22f93de87 --->

#### USDC.wh and xcUSDT Borrow Rates

Since MIP-M11 was [submitted](https://moonwell.fi/governance/proposal/moonbeam?id=63) on-chain, borrow rates have averaged between 14% to 16%. Gauntlet recommends further IR Curve and reserve factor adjustments to help mitigate high utilization. We will be adjusting the Jump Multiplier, Multiplier, and Reserve Factor higher. The Jump Multiplier increase will push borrower APR at full utilization to 126% from 100%. The borrow APR at kink will increase from 5.19% to 6%. The recommended values will be the same across all stablecoins within the Moonbeam markets. We will monitor the impact of these adjustments and make any further adjustments if necessary to maintain utlization at the kink.


#### IR Curve for USDC.wh, USDT, and xcUSDC

#### Recommended Borrow & Supply APR for USDC.wh, xcUSDT and xcUSDC
| Utilization | Borrow APR | Supply APR |
| ----------- | ---------- | ---------- |
| 0 | 0 | 0 |
| 80 | 6 | 3.84 |
| 100 | 126 | 100.8 |

#### Current Borrow and Supply APR for USDC.wh and xcUSDT
| Utilization | USDC.wh Borrow APR | USDC.wh Supply APR | xcUSDT Borrow APR | xcUSDT Supply APR |
| ----------- | ------------------ | ------------------ | ----------------- | ----------------- |
| 0 | 0 | 0 | 0 | 0 |
| 80 | 5.19 | 3.53 | 5.19 | 3.53 |
| 100 | 100.2 | 85.17 | 85.2 | 72.42 |

The current incentives for USDC.wh and xcUSDC yield approximately 11% APY, making recursive positions profitable in the Moonbeam market even with high utilization. Gauntlet recommends increasing reserve factors to reduce Supply APY by 6%, encouraging users to maintain utilization at the kink. As shown below, the top borrow positions across xcUSDT and USDC.wh are recursive.

Additionally, this increase in reserves will support the community's decision to enhance liquidity in the FRAX market as voted in the `Options for Enhancing Liquidity in the FRAX Market on Moonbeam` [snapshot](https://snapshot.moonwell.fi/#/proposal/0x7d5ca6ebdf704ec4cfebcf12ef1b841f60b60318976d52cdfa7979191ee94cfb).

xcUSDC IR recommendations implementation was delayed from our previous [recommendations](https://forum.moonwell.fi/t/gauntlets-base-moonbeam-moonriver-recommendations-2023-12-06/698) in December. This proposal will work to rectify the curve to match it with other stablecoins.

### Moonwell Moonbeam Projected Revenue KPIs

### Projected Annual Reserves

## Methodology
This set of parameter updates seeks to maintain the overall risk tolerance of the protocol while making risk trade-offs between specific assets.

Gauntlet’s parameter recommendations are driven by an optimization function that balances 3 core metrics: insolvencies, liquidations, and borrow usage. Parameter recommendations seek to optimize for this objective function. Our agent-based simulations use a wide array of varied input data that changes on a daily basis (including but not limited to asset volatility, asset correlation, asset collateral usage, DEX / CEX liquidity, trading volume, expected market impact of trades, and liquidator behavior). Gauntlet’s simulations tease out complex relationships between these inputs that cannot be simply expressed as heuristics. As such, the input metrics we show below can help understand why some of the param recs have been made but should not be taken as the only reason for recommendation. To learn more about our methodologies, please see the Helpful Links section at the bottom.

## Supporting Data

The below figures show trends on key market statistics regarding borrows and utilization that we will continue to monitor:

### Top 10 Borrowers’ Aggregate Positions & Borrow Usages

### Top 10 Borrowers’ Entire Supply

*[Link](https://risk.gauntlet.network/protocols/moonwell/markets/artemis?fullscreen=market_health_latest_top_borrowers_supply) to chart*

### Top 10 Borrowers’ Entire Borrows

*[Link](https://risk.gauntlet.network/protocols/moonwell/markets/artemis?fullscreen=market_health_latest_top_borrowers_borrows) to chart*

### Utilization Rate of Assets - Timeseries

*[Link](https://risk.gauntlet.network/protocols/moonwell/markets/artemis?fullscreen=utilization_rate_timeseries) to chart*

### Borrow Cap Utilization

<!-- https://app.mode.com/gauntlet/reports/ef3e55d2f114/runs/9f3675c385cb -->

### Moonbeam 2% Market Depth for non-Stables

### xcUSDC Check-in

[xcUSDC](https://moonbeam.moonscan.io/token/0xffffffff7d2b0b761af01ca8e25242976ac0ad7d) liquidity on Moonbeam ecosystem has not ramp up since initial listing.

<!-- https://moonbeam.moonscan.io/token/0xffffffff7d2b0b761af01ca8e25242976ac0ad7d -->

### Collateral Usage - Timeseries

## Risk Dashboard
The community should use [Gauntlet’s Moonbeam Risk Dashboard](https://risk.gauntlet.network/protocols/moonwell/markets/artemis/recommendations) to better understand the updated parameter suggestions and general market risk in Moonbeam.

Value at Risk represents the 95th percentile **insolvency value** that occurs from simulations we run over a range of volatilities to approximate a tail event.

Liquidations at Risk represents the 95th percentile **liquidation volume** that occurs from simulations we run over a range of volatilities to approximate a tail event.

## Quick Links

*Please click below to learn about our methodologies:*

[Gauntlet Parameter Recommendation Methodology](https://medium.com/gauntlet-networks/gauntlets-parameter-recommendation-methodology-8591478a0c1c)
[Gauntlet Model Methodology](https://medium.com/gauntlet-networks/gauntlets-model-methodology-ea150ff0bafd)

*By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.*