At Gauntlet, we use agent-based simulations to evaluate the economic security of blockchain protocols. We have worked with the Maker team in parameter optimization for Liquidations 2.0 - an upgrade from the current Liquidations 1.2 system. The goal of the simulation was to optimize the Liquidations 2.0 parameters, which form the Dutch Auction pricing curve. We then compare the optimized Liquidations 2.0 system performance to the current Liquidations 1.2 system. Key metrics tested are auction throughput, risk, and slippage. Additionally, a key area of focus is in ensuring another Black Thursday insolvency situation does not occur again. Therefore we test these systems across a wide range of volatilities and simulate agent behavior over a 3 day period.
The Liquidations 2.0 analysis found the optimal parameter values:
buf = 110%
cusp <= 60%
tail >= 5200 seconds
step = 30 seconds
half life = 7200 seconds
cut = 99.7%
Additionally, the analysis shows that Liquidations 2.0 outperformed Liquidations 1.2 in every unambiguous metric of throughput and insolvency risk, especially during periods as volatile as Black Thursday.
We hope that this report can serve as a reference for the ongoing discussions about risk on Maker and the upcoming Liquidations 2.0 release.