Dana Chu Tung
    • Create new note
    • Create a note from template
      • Sharing URL Link copied
      • /edit
      • View mode
        • Edit mode
        • View mode
        • Book mode
        • Slide mode
        Edit mode View mode Book mode Slide mode
      • Customize slides
      • Note Permission
      • Read
        • Only me
        • Signed-in users
        • Everyone
        Only me Signed-in users Everyone
      • Write
        • Only me
        • Signed-in users
        • Everyone
        Only me Signed-in users Everyone
      • Engagement control Commenting, Suggest edit, Emoji Reply
      • Invitee
      • No invitee
    • Publish Note

      Publish Note

      Everyone on the web can find and read all notes of this public team.
      Once published, notes can be searched and viewed by anyone online.
      See published notes
      Please check the box to agree to the Community Guidelines.
    • Commenting
      Permission
      Disabled Forbidden Owners Signed-in users Everyone
    • Enable
    • Permission
      • Forbidden
      • Owners
      • Signed-in users
      • Everyone
    • Suggest edit
      Permission
      Disabled Forbidden Owners Signed-in users Everyone
    • Enable
    • Permission
      • Forbidden
      • Owners
      • Signed-in users
    • Emoji Reply
    • Enable
    • Versions and GitHub Sync
    • Note settings
    • Engagement control
    • Transfer ownership
    • Delete this note
    • Save as template
    • Insert from template
    • Import from
      • Dropbox
      • Google Drive
      • Gist
      • Clipboard
    • Export to
      • Dropbox
      • Google Drive
      • Gist
    • Download
      • Markdown
      • HTML
      • Raw HTML
Menu Note settings Sharing URL Create Help
Create Create new note Create a note from template
Menu
Options
Versions and GitHub Sync Engagement control Transfer ownership Delete this note
Import from
Dropbox Google Drive Gist Clipboard
Export to
Dropbox Google Drive Gist
Download
Markdown HTML Raw HTML
Back
Sharing URL Link copied
/edit
View mode
  • Edit mode
  • View mode
  • Book mode
  • Slide mode
Edit mode View mode Book mode Slide mode
Customize slides
Note Permission
Read
Only me
  • Only me
  • Signed-in users
  • Everyone
Only me Signed-in users Everyone
Write
Only me
  • Only me
  • Signed-in users
  • Everyone
Only me Signed-in users Everyone
Engagement control Commenting, Suggest edit, Emoji Reply
Invitee
No invitee
Publish Note

Publish Note

Everyone on the web can find and read all notes of this public team.
Once published, notes can be searched and viewed by anyone online.
See published notes
Please check the box to agree to the Community Guidelines.
Engagement control
Commenting
Permission
Disabled Forbidden Owners Signed-in users Everyone
Enable
Permission
  • Forbidden
  • Owners
  • Signed-in users
  • Everyone
Suggest edit
Permission
Disabled Forbidden Owners Signed-in users Everyone
Enable
Permission
  • Forbidden
  • Owners
  • Signed-in users
Emoji Reply
Enable
Import from Dropbox Google Drive Gist Clipboard
   owned this note    owned this note      
Published Linked with GitHub
Subscribed
  • Any changes
    Be notified of any changes
  • Mention me
    Be notified of mention me
  • Unsubscribe
Subscribe
# Gauntlet Recommendations: Inter Protocol - New Asset Listing (8/14/23) ## Background Gauntlet's goal with initial asset listings is to ensure that insolvency and liquidity risks are minimized and that when liquidations occur, they can be done healthily with incentivized liquidators. To be unbiased, Gauntlet will not explicitly support any asset listing but instead provides risk recommendations for the community. Gauntlet will assess a given asset's liquidity and other market characteristics to be added to the protocol. Gauntlet will relay our findings to the IEC and make parameter recommendations for Minimum Collateralization Ratio, Liquidation Ratio, Liquidation Penalty, Mini Limit, etc. For initial asset listings, the parameter recommendations are based on market and liquidity data. After 30 days of user positions developing on the protocol, Gauntlet will provide risk recommendations based on the actual usage data and market conditions using our risk models. ## Summary stATOM stands as the largest LST (Liquid Staking Token) on the Cosmos blockchain, offering users the opportunity to earn PoS staking rewards while retaining their liquidity for seamless interactions with decentralized applications (dApps). In the context of a new asset listing, Gauntlet's primary objective is to mitigate insolvency and liquidity risks while ensuring that liquidations, when necessary, are conducted in a healthy manner. For the initial listing of stATOM on the Inter Protocol, Gauntlet presents the community with two options for risk parameters: Minimum Collateral Ratio, Liquidation Ratio, and Mint Limit. Option 1 adopts a conservative LR approach with a higher Liquidation Ratio and a correspondingly higher Mint Limit. On the other hand, Option 2 follows a tolerant LR strategy, featuring a lower Liquidation Ratio alongside a reduced Mint Limit. Both options empower the community by providing choices, allowing them to decide whether to prioritize a higher Liquidation Ratio or a higher Mint Limit. These choices aim to minimize risk exposure when listing an initial asset, ensuring a well-considered and secure launch process. ## Option 1 | Parameter | stATOM | | --- | --- | |Minimum Collateral Ratio |240%| Liquidation Ratio|220%| Mint Limit|$800,000| ## Option 2 | Parameter | stATOM | | --- | --- | |Minimum Collateral Ratio |220%| Liquidation Ratio|200%| Mint Limit|$600,000| **It’s important to note if it is required for a protocol to increase the liquidation ratio to minimize risk, this action can result in a poor user experience.** Therefore, lowering this parameter should be done gradually over time as the market evolves and liquidation mechanisms are thoroughly tested. ## General Recommendation | Parameter | stATOM | | --- | --- | |Interest Rate |2.5%| Liquidation Penalty|10%| Minting Fee|$0| Minimum Initial Debt|$50| ## Analysis **What is stATOM?** - In Proof-of-Stake blockchains, token holders have the option to lock up (stake) their tokens to enhance network security. The security of the network is directly correlated to the number of tokens staked. However, this staking mechanism can lead to capital inefficiencies and liquidity challenges for users and on-chain protocols. - Liquid staking protocols offer a solution to this issue by introducing liquid staking tokens (LSTs) backed by staked tokens. With LSTs, stakers can simultaneously earn PoS staking rewards while utilizing their assets to interact with various dApps, enabling them to earn yields and participate in lending/borrowing activities. - Among the various LSTs in the Cosmos hub, stATOM developed by Stride stands as the largest. **Metrics Analysis and On-Chain Data Review** **Markets** stATOM currently has a circulating supply of 2,380,719 tokens, with a market cap of $26,902,132. This asset is not listed on major centralized exchanges (CEXs) like Coinbase, Binance, or Gemini. However, approximately 46% of its circulating supply resides in the Osmosis stATOM/ATOM pool, ensuring sufficient liquidity for considering this asset as collateral. **Major markets for stATOM** | Markets | Liquidity (USD) | 25% Depth (USD) | 2% Depth (USD)| | --- | --- |--- |--- | |Osmosis |$12M|$800k|$5k| ShadeSwap|$1.08M|$170K|$1K| **Volatility** The following graph shows the frequency of day-over-day price changes of given magnitudes for WETH and stATOM since stATOM started trading. As shown in the figure, stATOM has more frequent and larger price swings compared to WETH. stATOM's 30D volatility is estimated around 82%, whereas ETH's stands at 66%. - The maximum daily drawdown for stATOM happened on 11/10/22, when the price crashed 20% from 12.29 to 9.79 as the FTX risk event was happening. - Given that stATOM is a relatively new asset, its trading history lacks substantial market stress events. Therefore, historical volatility may not reflect its future volatility, requiring IST to take conservative measures for listing this asset. - **The timeseries below show how stATOM’s volatility has evolved since it started trading until June 23 (the chart reflects stATOM’s true price and not the price reflected by Coingecko).** ![](https://hackmd.io/_uploads/HkVU5hqhh.png) ![](https://hackmd.io/_uploads/S1rIchqh3.png) **Daily Volume** The chart below shows stATOM’s daily volume on the Cosmos blockchain. The mean daily volume is $100k providing sufficient efficiency to Cosmos DEXs. As shown in the second figure, stATOM’s volume has been trending upwards through this year. ![](https://hackmd.io/_uploads/rJ5_93chh.png) ![](https://hackmd.io/_uploads/H1s_q2q3h.png) ### Tail Risks Assessment - **Oracle price deviation:** stATOM is a relatively new and smaller asset in terms of volume and market cap. Its limited presence on centralized exchanges (CEXs) exposes it to a higher risk of oracle price deviation or potential exploits. - On June 29, 2023, when ShadeSwap was newly listed on Coingecko, a sudden surge in trading volume was observed. This event caused a temporary deviation in reported stATOM's prices. The price of stATOM was inaccurately reported as ~$0.02, instead of the actual ~$10 On Coingecko. This led to the band protocol’s price feed reporting a price of ~$6 for stATOM and hence, liquidation of stATOM vaults on lending/borrowing protocols on Cosmos. The chart below shows stATOM prices as reported on Coingecko. - ![](https://hackmd.io/_uploads/Bkps5h533.png) - To mitigate such risks and safeguard users’ vaults, Gauntlet strongly recommends Inter Protocol to prioritize the robustness of their oracle design, especially given the few number of price sources for stATOM. Using median prices and Time-Weighted Average Prices (TWAPs) can significantly reduce the susceptibility of the reported prices to manipulation, ensuring more accurate and reliable data for liquidations. - **Sharp deviation from ATOM:** Staking yields are susceptible to Proof of Stake slashing mechanisms, which could lead to rapid declines in the price of stATOM/ATOM. The risk of staked assets depegging introduces additional market volatility for these tokens compared to the base asset (ATOM). However, for the Inter protocol, stATOM is just another collateral asset against IST, therefore this tail risk of depegging is not as significant. ## Recommendations Even though stATOM is a relatively new asset, its substantial on-chain liquidity makes it suitable for listing as collateral on the Inter Protocol. Notably, the Osmosis DEX allows for swapping stATOM to USDC, with a 25% depth representing 132,000 tokens (approximately $800k). The on-chain liquidity from Cosmos DEXs ensures that liquidations for stATOM collateral can be carried out efficiently. **Following a 30-day period of collateral enablement, Gauntlet's continuous parameter tuning process, conducted through simulation optimization, will cautiously explore the possibility of decreasing LR and MCR parameters. This decision will be driven by analyzing actual usage data and current market conditions, ensuring that adjustments prioritize safety and mitigating insolvency risk.** ## Parameters ### General Recommendations **Interest Rate → 2.5%** Our analysis suggests setting the initial interest rate to 2.5%, which aligns with stablecoin borrowing interest rates on other major DeFi lending platforms. **Liquidation Penalty → 10%** The liquidation penalty incentivizes for users to manage their vaults to avoid liquidation. We recommend initializing it at 10%. This penalty is higher than other major platforms in DeFi on Ethereum, as there is currently zero DEX liquidity on the Agoric chain itself. This means that ATOM vaults cannot be liquidated in a single atomic transaction. Liquidators must hold the liquidated tokens for at least the length of a bridge transaction, which adds capital costs and risk to the process. **Minting Fee → $0** The minting fee is primarily a source of revenue for the protocol. It can be initialized at $0 to incentivize users to join IST. ****Minimum Initial Debt → $50**** The minimum initial debt prevents users from opening vault positions that would be too small to service. Dust vaults that cost more to liquidate than they are worth are effectively dead funds; effectively the same as insolvent collateral. The minimum should be set such that liquidations are always profitable net of transaction costs. We recommend setting it to $50, to be robust to relatively high transaction costs when the chain achieves greater adoption. ## Option 1 | Parameter | stATOM | | --- | --- | |Minimum Collateral Ratio |240%| Liquidation Ratio|220%| Mint Limit|$800,000| **Liquidation Ratio & Minimum Collateral Ratio** Due to stATOM's relatively high volatility, recent incidents of oracle deviation, and limited price data, Gauntlet recommends a conservative liquidation ratio of 220% for stATOM. This ratio is subject to change as the market evolves, mechanics are tested out and actual user positions develop. **Mint Limit** The mint limit is the max amount of IST that can be minted across all stATOM-backed vaults. We recommend an initial value of $800,000 at recommended LR, as this amount can be safely liquidated via on-chain DEX liquidity without producing enough slippage to become insolvent. This recommended mint limit minimizes losses in an infinite mint attack (and other attacks like oracle manipulation). ## Option 2 | Parameter | stATOM | | --- | --- | |Minimum Collateral Ratio |220%| Liquidation Ratio|200%| Mint Limit|$600,000| ****Liquidation Ratio & Minimum Collateral Ratio**** Given the Inter protocol’s strategy for growth, Gauntlet recommends a less conservative LR and MCR recommendations with an adjusted Mint Limit. A liquidation ratio of 200% ensures the protocol would remain solvent in the event of a 40% daily drawdown. (40% represents ATOM’s maximum daily drawdown, and stATOM, which is pegged to ATOM, follows a similar price trajectory) while allowing borrowers to increase their capital efficiency by having higher collateral usage. **Mint Limit** Gauntlet suggests a $600k USD mint limit based on the more tolerant LR recommendations to reduce insolvency risk to the Inter Protocol. This ensures that the lower collateralized positions can be liquidated safely in a severe market downturn and minimize insolvencies. Since slippage could be relatively high for liquidating large positions of stATOM, a mint limit of 600k ensures slippage costs could be covered by these higher collateral usage positions in the event of an extreme market downturn. This recommended mint limit minimizes losses in an infinite mint attack (and other attacks like oracle manipulation). *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*

Import from clipboard

Advanced permission required

Your current role can only read. Ask the system administrator to acquire write and comment permission.

This team is disabled

Sorry, this team is disabled. You can't edit this note.

This note is locked

Sorry, only owner can edit this note.

Reach the limit

Sorry, you've reached the max length this note can be.
Please reduce the content or divide it to more notes, thank you!

Import from Gist

Import from Snippet

or

Export to Snippet

Are you sure?

Do you really want to delete this note?
All users will lose their connection.

Create a note from template

Create a note from template

Oops...
This template is not available.
Upgrade
All
  • All
  • Team
No template found.

Create custom template

Upgrade

Delete template

Do you really want to delete this template?
Turn this template into a regular note and keep its content, versions, and comments.

This page need refresh

You have an incompatible client version.
Refresh to update.
New version available!
See releases notes here
Refresh to enjoy new features.
Your user state has changed.
Refresh to load new user state.

Sign in

Forgot password

or

By clicking below, you agree to our terms of service.

Sign in via Facebook Sign in via Twitter Sign in via GitHub Sign in via Dropbox Sign in with Wallet
Wallet ( )
Connect another wallet

New to HackMD? Sign up

Help

  • English
  • 中文
  • Français
  • Deutsch
  • 日本語
  • Español
  • Català
  • Ελληνικά
  • Português
  • italiano
  • Türkçe
  • Русский
  • Nederlands
  • hrvatski jezik
  • język polski
  • Українська
  • हिन्दी
  • svenska
  • Esperanto
  • dansk

Documents

Help & Tutorial

How to use Book mode

How to use Slide mode

API Docs

Edit in VSCode

Install browser extension

Get in Touch

Feedback

Discord

Send us email

Resources

Releases

Pricing

Blog

Policy

Terms

Privacy

Cheatsheet

Syntax Example Reference
# Header Header 基本排版
- Unordered List
  • Unordered List
1. Ordered List
  1. Ordered List
- [ ] Todo List
  • Todo List
> Blockquote
Blockquote
**Bold font** Bold font
*Italics font* Italics font
~~Strikethrough~~ Strikethrough
19^th^ 19th
H~2~O H2O
++Inserted text++ Inserted text
==Marked text== Marked text
[link text](https:// "title") Link
![image alt](https:// "title") Image
`Code` Code 在筆記中貼入程式碼
```javascript
var i = 0;
```
var i = 0;
:smile: :smile: Emoji list
{%youtube youtube_id %} Externals
$L^aT_eX$ LaTeX
:::info
This is a alert area.
:::

This is a alert area.

Versions and GitHub Sync
Upgrade to Prime Plan

  • Edit version name
  • Delete

revision author avatar     named on  

More Less

No updates to save
Compare
    Choose a version
    No search result
    Version not found
Sign in to link this note to GitHub
Learn more
This note is not linked with GitHub
 

Feedback

Submission failed, please try again

Thanks for your support.

On a scale of 0-10, how likely is it that you would recommend HackMD to your friends, family or business associates?

Please give us some advice and help us improve HackMD.

 

Thanks for your feedback

Remove version name

Do you want to remove this version name and description?

Transfer ownership

Transfer to
    Warning: is a public team. If you transfer note to this team, everyone on the web can find and read this note.

      Link with GitHub

      Please authorize HackMD on GitHub
      • Please sign in to GitHub and install the HackMD app on your GitHub repo.
      • HackMD links with GitHub through a GitHub App. You can choose which repo to install our App.
      Learn more  Sign in to GitHub

      Push the note to GitHub Push to GitHub Pull a file from GitHub

        Authorize again
       

      Choose which file to push to

      Select repo
      Refresh Authorize more repos
      Select branch
      Select file
      Select branch
      Choose version(s) to push
      • Save a new version and push
      • Choose from existing versions
      Include title and tags
      Available push count

      Upgrade

      Pull from GitHub

       
      File from GitHub
      File from HackMD

      GitHub Link Settings

      File linked

      Linked by
      File path
      Last synced branch
      Available push count

      Upgrade

      Danger Zone

      Unlink
      You will no longer receive notification when GitHub file changes after unlink.

      Syncing

      Push failed

      Push successfully