Isolated Assets

Isolated Asset Support

What Are Isolated Assets?

Isolated assets are assets that have their risk exposure ring-fenced from the rest of the protocol.

• If liquidation occurs, it only affects that specific isolated market and your tied collateral—not the broader system.

• Isolated assets help Echelon expand asset coverage safely while protecting lenders and the protocol from contagion risk.

Key Considerations

Isolated Asset Collateral

• Collateral supplied to back an isolated borrow can only be used for that position.

• Example: If you borrow APT against an isolated token (e.g., AMI), your collateral is tied only to that borrow. You cannot simultaneously borrow another token against the same collateral.

• If the isolated asset’s market becomes volatile, only that borrow and its collateral are at risk.

• Echelon enforces more conservative borrow limits and LTVs for isolated assets

Monitoring Your Position

• Isolated assets are more volatile by design.

• Monitor your borrow health and collateral value frequently to avoid liquidation.

• Adding collateral or repaying part of the borrow early can reduce risk.

Loss Socializing

One major risk of isolated pools is underwater debt (when liquidations fail to cover bad debt). Without safeguards, this can trigger a “race to exit,” where late lenders could bear the full shortfall.

Echelon uses loss socializing to address this:

• Instead of one lender absorbing all losses, the protocol spreads the shortfall evenly across all liquidity providers in the pool.

• This mechanism ensures fairness: everyone shares a small fraction of the impact, rather than uneven and catastrophic losses.

• By socializing losses, isolated pools remain functional and attractive for liquidity providers, even for higher-risk assets.

Why It Matters

• For borrowers: Isolated markets allow access to new or volatile assets without threatening other positions.

• For lenders: Risk is contained and mitigated through conservative limits and loss socializing.

• For the protocol: Echelon can safely expand supported assets without compromising systemic stability.