🪙Asset-level Risk Parameters
Each asset in the Echelon Markets protocol has specific risk values that affect how they're used for lending and borrowing. V1 enhances risk mitigation with additional parameters focusing on security, governance, and market dynamics.
Understanding the risks associated with each asset is crucial, including smart contract security, centralization risks, and market dynamics. Assets bring their inherent risks into the Echelon Markets ecosystem. V1 introduces advanced risk parameters, facilitating the onboarding of high-risk assets with defined limits.
The main collateral market and isolsted markets have different requirements and functions. When assets being considered for listing, their usage, distribution, liquidity, and overall quality are assess to determine LTVs, supply + borrow caps, and interest rate models.
Assets in Echelon Markets are added through governance proposals or by Asset Listing Admins appointed by governance.
Risk parameters in Echelon Markets mitigate market risks. In V1, each loan requires over-collateralization with assets subject to market volatility. Adequate margins and incentives are vital to maintain collateralization during adverse market conditions. If collateral value falls below a set threshold, a portion is liquidated to repay debt and maintain collateralization.
These parameters, including collateralization and liquidation rules, are asset-specific.
V1 introduces tried and true risk parameters from various lending markets.
Supply Caps: Limit the maximum supply of an asset to the protocol, based on on-chain liquidity and total collateral volume.
Borrow Caps: Set a maximum borrow limit for an asset to prevent price exploits, large liquidations and insolvency risks.
Maximum Loan-to-Value (LTV): The maximum borrowing power of a given collateral asset.
Liquidation Thresholds (LT): The point at where collateral can be liquidated to repay lenders.
Liquidation Incentives: Portion of repaid collateral that is given to liquidators.
Efficiency Mode (eMode): Special configuration for correlated assets. Higher LTV ratios for capital efficiency, lower Liquidation Incentives to decrease chance of bad debt on leveraged positions.
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