**The relevant discussion:** [https://interlay.subsquare.io/post/12](https://interlay.subsquare.io/post/12)

## Tl;dr.

- KINT Vault block rewards are currently too high, considering market conditions and in comparison to competitors / projects with similar risk profile.

- This proposal suggests to adjust Vault block rewards to a more sustainable level, updating the KSM collateral requirements to competitive and more capital-efficient rates, and introducing regular review cycles to assess ROI for protocol and Vault operators.

- The saved funding will remain with the network treasury, to be used as governance decides, e.g.. to bootstrap kBTC growth as market conditions improve and help build liquidity in the native AMM and lending protocols set to launch on Kintsugi and Interlay in early 2023 (more details in upcoming Interlay 2.0 whitepaper - [read 2.0 roadmap announcement](https://medium.com/interlay/interlay-2-0-roadmap-c6387d9d1abb)).



## Goal
The goal of this proposal is to adjust Vault block reward rates to be more sustainable while keeping incentives for operators high enough - and more reliable.

## Solution
**1) Reduce collateral thresholds.**
The latest collateral risk models [1] suggest the following collateral thresholds for KSM (on Kintsugi):

liquidation: 130%
premium-redeem: 145%
secure (min. when minting): 160%

This change **reduces the capital requirements of Vaults by ~40%**.

For more information on the meaning of individual thresholds, see [2]

**2) Adjust Vault block rewards to competition.**
The proposal is to adjust the Vault rewards such that:

**APR on Kintsugi is ~30%** assuming the amount of collateral locked at the time of this proposal. This proposal updates the block reward from 0.456621004566 KINT to 0.102803978513969 KINT.

**3) Regular Review & Adjustment of Vault Economics.**
Rather than having a static model, we propose that Vault economics be reviewed on a regular basis, allowing to react and adjust for external/macroeconomic events.

The community, including Vault operators, can make recommendations/requests to adjust the Vault rewards schedule via the Governance portal (guides provided).

The process to adjust rewards will be greatly simplified over the next months with upcoming improvements to governance (more details are in [the Interlay 2.0 whitepaper](https://medium.com/interlay/interlay-2-0-roadmap-c6387d9d1abb)).

## Expected Result
The optimization of collateral thresholds combined with the adjusted reward schedule is expected to reduce emissions as follows:

- KINT emission by ~78%

## Why should community vote in favor of this proposal?
This proposal makes a big step to improving the economic stability and outlook of Kintsugi.

The current emission schedule was conceived during a growing crypto market, in anticipation of reaching significant kBTC targets by EOY 2022. However, due to recent macro-economic events in crypto (Luna, 3AC, Celsius and now FTX), as well as the two hacks (Nomad impacting Moonbeam and aUSD on Acala) affecting Polkadot, the growth of DeFi on Dotsama has not been as fast as hoped. As a result, kBTC and iBTC utilization rates are low, with most BTC sitting on Kintsugi/Interlay.

The high initial emission was also a measure to reward early technical risk and to cover the high collateral requirements imposed at launch (260% over-collateralization for KSM/DOT Vaults). The technical risk of the bridge can be considered significantly reduced by now. The bridge has been operating successfully since March 2022 on Kintsugi and since August 2022 on Interlay, withstanding the recent market turbulences. The removal of the aggressive BTC theft reporting [4] has also greatly reduced the risk of wrongfully slashing Vaults. The proposed reduction of collateral thresholds to competitive rates also constitutes a big step towards Vault capital efficiency.

### References
[1] Interlay Vault collateral risk modelling framework. [https://github.com/interlay/collateralization-analysis](https://github.com/interlay/collateralization-analysis)

[2] Vault collateral thresholds. [https://docs.interlay.io/#/vault/overview?id=collateral](https://docs.interlay.io/#/vault/overview?id=collateral)

[3] APR comparison to similar projects. [https://api.ipfsbrowser.com/ipfs/get.php?hash=QmPhP8utFLhharELDeN6Njbc2234DGxnc4A73wxf2JHwPJ](https://api.ipfsbrowser.com/ipfs/get.php?hash=QmPhP8utFLhharELDeN6Njbc2234DGxnc4A73wxf2JHwPJ)

[4] Kintsugi proposal discussing removing theft-reporting. [https://kintsugi.subsquare.io/democracy/referendum/52](https://kintsugi.subsquare.io/democracy/referendum/52)

Adjustment to Vault Reward Schedule on Kintsugi

I burned [0.0575407](https://kintsugi.subscan.io/extrinsic/0x91c5d58a4d1b796939de630b856f7a945ff663c376837c26de49710002885817) kBTC without getting KSM in return.
turn them from the treasury in equivalent KINT