Initially the dashboard will track capital efficiency via Borrow Usage and risk via Value At Risk. From our initial user studies, these were the key metrics users wanted to see.
In addition to the dashboard, we will follow the outlined communications plan to capture anything that isn’t yet represented (i.e. Risk adjusted yield).
There are additional features on our roadmap like a visualization of users with undercollateralized loans and collateral liquidation ‘depth’. We plan on iterating on this dashboard over time and adding new features that we identify through continued community engagement.
Proposal 49 routes a fraction of liquidation incentive from liquidators to the reserves. This change effectively allocates 5.2% of liquidation to liquidators and 2.8% to the reserves, which increases the protocol’s ability to recover from insolvency by growing the backstop liquidity, but reduces the incentive for liquidators. We will update the effective liquidator incentive to 5.2% in the simulation to accommodate the change.
Our current simulation is mainly focused on modeling insolvency risk in one day. Considering the average liquidation size relative to the sizes of reserves, the 2.8% of liquidations added to the reserves in a day will likely not have an immediate impact in such a short time frame. However, tracking the amount of reserves over time and forecasting the growth rate of the reserves due to parameter changes can definitely help community members to better understand the protocol’s liquidity backstop. Forecasting the reserve growth rate is not in our initial scope, but we will evaluate how to support this in Q1 2022.
Our primary goal for simulations is to standardize VaR across all assets, to ensure no subset of assets adds disproportionate risk to the protocol. We will target a similar system-level VaR to the current risk parameters as the moderate risk level recommendation. Additionally, we will provide aggressive/conservative risk level recommendations by targeting x% of capital efficiency increase/decrease.
As our philosophy is avoiding non-quantitative decisions, we don’t decide on what “acceptable” VaR relative to reserves is. We will facilitate the community’s decision-making process by creating quarterly off-chain polling for the community to decide this high-level objective. Community members can check our risk dashboard to get an estimate of VaR relative to reserves to understand the protocol’s ability to recover from insolvency events.
As mentioned above, Gauntlet seeks to charge commensurate to the value provided. This means measuring our work against the target metrics, communication objectives, and deliverables like the Risk Dashboard. We encourage the community to evaluate these items proactively and on a regular cadence ahead of our proposed quarterly fee update.
We have sought consultation from various community members, not solely our investors, and we encourage all others to use this thread to weigh in on the proposed fees.
Gauntlet is a firm believer in Compound’s mission and growth. As such, we plan on holding COMP tokens and self delegating for governance votes. Depending on Gauntlet’s cash flow needs, including but not limited to tax payments and operational expenses, we may need to sell tokens at a future date. For reference, we have not sold any of the COMP initially granted to us in Dec. 2020 via CP030.