# Isolated Assets

### 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.