# Moonbeam Recommendations (2023-12-06)

## Simple Summary

A proposal to adjust 3 total risk parameters:

| Parameter | Current Value | Recommended Value |
| -------- | -------- | -------- |
| FRAX Borrow Enabled | Y | N |
| FRAX Collateral Factor | 59% | 56% |
| xcDOT Collateral Factor | 63% | 60% |

A proposal to make 3 IR curve adjustments for 3 assets:
| USDC.wh, xcUSDT, and xcUSDC IR Parameters | Current | Recommended |
| --------------- | ------- | ----------- |
| BASE | 0 | 0 |
| Kink | 0.8 | 0.8 |
| Multiplier | 0.0625 | 0.065 |
| Jump Multiplier | 2.5 | 2.5 |

---
# Rationale:

## Risk Parameters

Our recommendations have an estimated VaR at $0 and remains unchanged. LaR increased to $427k from $428k with our current recommendations. Based on simulation results, Gauntlet recommends decreasing the collateral factors for FRAX and 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
On November 13th, we observed a substantial outflow of 21% (1.1 million FRAX) in supply. Following continuous monitoring and noting the absence of liquidity recovery since mid-November, Gauntlet is putting forth these recommendations to address and mitigate risk concerns.This impact has caused there to be limited liquidity, with utilization at approximately 89%. At this time, Moonwell's bad debt within the FRAX liquidity pool represents approximately 91% of outstanding borrows within the pool. To address this high utilization, Gauntlet recommends to pause borrows, effectively halting further borrowing until utilization decreases below the kink threshold. In the near future, we will explore additional measures to further reduce high utilization in the pool.

Additionally, Gauntlet is advising a gradual reduction of the collateral factor for the FRAX liquidity pool as a precautionary measure to mitigate insolvency risk in the event that utilization reaches 100%. Gauntlet will be evaluating the situtation further and may recommend further CF reductions or full disable of FRAX collateral if liquidity within the FRAX pool continues to deteriorate.

#### Frax Supply & Borrow over Time
*[Link](https://risk.gauntlet.xyz/protocols/moonwell/markets/artemis) to chart*
Gauntlet will continue to monitor the pool and work to provide further additional recommendations informed by position behavior and community feedback.

#### FRAX Top Supply Positions

Here are the largest supplier of FRAX within the Moonbeam market. As of now, the largest supplier has no borrow position on their supply of 1.19M. The reduction of CF from 59% to 56% will reduce this user's borrowing power from $702k to $666k while reducing overall borrowing power from 2.1M FRAX to 1.9M.

#### xcDOT Top Supply Positions
4 out 5 of the top suppliers of xcDOT have borrow usage below 60%.

There is approximately $3M in borrowing power for xcDOT with $868k in collateral usage. Gauntlet recommends reducing collateral factors as a risk-off measure to improve risk-adjusted capital effiency to the protocol. The reduction of xcDOT has no liquidation impact to users.

3 Users are expected to be impacted by the collateral factor reductions with a total borrow balance of $17.4k. These users are impacted by FRAX CF reduction.

#### Liquidation Impact
<details>
<summary> Liquidable Users </summary>

| User | Supply Balance USD | Borrow Balance USD | Current Health |
| ------------------------------------------ | ------------------ | ------------------ | -------------- |
| 0xc6302894cd030601d5e1f65c8f504c83d5361279 | 11399.7744 | 6480.1139 | 1.03 |
| 0xb5f4a4590d89d61ae376c6fc9cfe5c496ff06688 | 10081.9085 | 5770.2784 | 1.03 |
| 0x28cf3c605216a841b1e3b77aad0c82d760ed7a00 | 9242.6678 | 5303.1361 | 1.02 |

</details>
<br>

#### 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 | 25% Depth USD | 25% Depth - 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
Utilization rates have consistently remained at or above the kink since early November for USDC.wh and xcUSDT and US1Y and US2Y yields are currently above 5%. This data suggests that increasing Multiplier may enhance borrowing revenue without adversely impacting borrowing demand. This recommendation should motivate users to maintain utilization at the kink.

### Current Borrow and Supply APR by Utilization

### Current vs Recommended Borrow APR by Utilization

| Utilization | Current Borrow APR | Current Supply APR | Recommended Borrow APR | Recommended Supply APR |
| ----------- | ------------------ | ------------------ | ---------------------- | ---------------------- |
| 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| 80.0% | 5.0% | 3.4% | 5.2% | 3.5% |
| 100.0% | 55.0% | 46.7% | 55.2% | 46.9% |

The adjustment to the curves will result in a 20 basis points (bps) increase in the borrow APR at the kink, while the supply APR at the kink will experience a 10 bps increase.

### 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 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.*