# Gauntlet Recommendations: Inter Protocol - Risk Parameter Changes (8/14/23)
## Simple Summary
Gauntlet provides two options to the IEC to adjust the risk parameters for ATOM. Option 1 is conservative with liquidation ratio, ensuring that protocol can withstand market drawdown. Option 2 provides more capital efficiency to the protocol by lowering the liquidation ratio while ensuring that the protocol TVL is low enough that positions could be safely liquidated.

**Option 1**
- Decrease ATOM minimum collateral ratio from 250% to 210%.
- Decrease ATOM liquidation ratio from 230% to 200%.

**Option 2**
- Decrease ATOM minimum collateral ratio from 250% to 210%.
- Decrease ATOM liquidation ratio from 230% to 180%.
- Decrease mint limit from $1m USD to $600k.

## Analysis
At Gauntlet, we previously recommended conservative parameters for the launch of this new market. This was to ensure that the protocol mechanisms work as intended and allow liquidity to flow into the contracts before increasing risk thresholds.

Launched on 06/27/23, IST vaults now have $65k in collateral with an average collateralization ratio of 266%. To decrease liquidation risk for existing users, and to drive more capital into the Inter protocol, Gauntlet recommends two options for updating the risk parameters for Atom.

**The table below provides an estimation of insolvencies assuming that mint limits are reached with the current user position distribution. Each cell shows what the insolvency estimates would be for a certain mint limit and liquidation ratio in the event of a 40% drawdown in the price of ATOM. For instance, for a $1m USD mint limit, a liquidation threshold below 200% would yield insolvencies for the protocol. This number decreases for smaller mint limits as slippage costs become less significant for liquidators.**

**Insolvencies after a 40% drawdown in $ATOM**
| LR/Mint Limit | $1,000,000 | $800,000 |$600,000|$400,000|$200,000|
| --- | --- | --- | --- | --- | --- |
|170% |-90878|-38095|-2616|0|0|
|180%|-51182|-4302|0|0|0|0|
|190%|-11485|0|0|0|0|
|200%|0|0|0|0|0|
|210%|0|0|0|0|0|
|220%|0|0|0|0|0|
|230%|0|0|0|0|0|

## Option 1
**Liquidation Ratio**
Gauntlet recommends a conservative liquidation ratio of 200% for ATOM. A 200% liquidation ratio brings more capital efficiency to the protocol, making it a more attractive investment option for users with lower liquidation risk. On the other hand, the threshold is high enough to ensure that liquidations happen safely, especially given the 1-hour delay in the liquidation process.

**Minimum Collateral Ratio**
Gauntlet proposes lowering the minimum collateral ratio from 250% to 210% to boost demand for the protocol. Given that this adjustment carries no insolvency risk, it presents an appealing opportunity to attract a broader user base, leading to a higher TVL.

## Option 2
**Liquidation Ratio**
In order to boost Inter Protocol’s growth, Gauntlet’s more tolerant option recommends decreasing the liquidation ratio from 230% to 180%. The goal of this approach aims to lower the liquidation ratio and increase capital efficiency for users.

It’s important to note that increasing the liquidation ratio would result in poor user experience. Therefore, lowering this parameter should be done gradually over time as the market evolves and liquidation mechanisms are thoroughly tested.

**Mint Limit**

Given the analysis in the table above, Gauntlet recommends a mint limit of $600k USD for a liquidation ratio of 180%. This is to ensure that the protocol’s TVL is small enough that liquidators can profitably liquidate positions in a market downturn. Especially given that borrow positions are usually concentrated in whale accounts, a smaller mint limit creates less slippage and other liquidation costs, and ensures protocol safety.

**Minimum Collateral Ratio**

Gauntlet proposes lowering the CR from 250% to 210% as a means to boost demand for the protocol.