Gauntlet Analysis:
The design intention for lowering borrow cap is more of a way to limit the losses related to an oracle attack, infinite minting, governance risks, and other technical risks. Gauntlet’s analyses focuses on market risk, which is different from these risks, so we advise that the community ultimately base their decision around their views on these risks listed above.
From a market risk perspective, lowering the borrow cap of MKR can reduce the likelihood of insolvency driven by MKR borrows (all else being equal), although we’d note that under current conditions our analysis already predicts low chance of insolvency driven by MKR borrow. Currently, there’s roughly $20M collateral locked for MKR and essentially no MKR borrowed. MKR has an annual volatility of ~110% and an ADV of ~$20M. Even if the entire MKR borrow cap of ~$50M becomes maxed out, the main market risk would be if one user borrows the entire $50M and the position becomes liquidatable. At that point, given the close factor of 50%, the liquidatable account’s $25M MKR would need to be repaid. Even in this case there is likely to be enough MKR liquidity on the secondary markets to liquidate that position (and prevent protocol insolvency).
To summarize: our analysis predicts that the impact of lowering MKR borrow limit, from a market risk perspective, is likely to be minimal. The community should make their decision from the perspective of oracle, infinite minting, governance, and other technical risks.