We used our supply cap methodology here.
We first find the amount eligible for liquidation given an extreme drop in the asset price using Chaos Labs’ Risk Explorer . We looked at a 15% price drop for MaticX, as a depeg scenario.
We then look for the maximum amount that can be liquidated while keeping the slippage below the Liquidation Penalty, using the 1% LP for the mode category.
Inserting this data into the formula below (taken from the publicly shared methodology) yields the recommended cap.
- Evaluate the
ExtremeProfitableLiquidationRatio:
This ratio represents how many times the ExtremeLiquidationAmount can be profitably liquidated had it all been liquidated at once. Requiring 90% of an asset’s liquidated amount will be liquidated at once is a defensive approach and can be set differently given changing risk appetites.
-
Set
R = min(ExtremeProfitableLiquidationRatio, 2) -
RecommendedSupplyCap = CurrentSupplyCap * R
It is important to note that in every recommendation we make regarding caps, we also look at qualitative data regarding the specific assets (such as redeemability in this case) and do not rely solely on the above methodology.