Global Risk-Parameters
Aggregating the Risk-Values obtained for each asset, we get the following results on the three main fields:
Smart Contract Risks - Medium-Low Risk: The tokens we plan to list have achieved an excellent average score in this area. This reflects a high level of maturity for the tokens and strong user engagement within the ecosystem. The security and reliability of the smart contracts that underpin these tokens are crucial factors in their overall risk assessment.
Counterparty Risks - Medium Risk: The tokens show an average aggregated score for counterparty risks. While this suggests a moderate level of risk, we must remain vigilant about potential issues in this category, such as token freezing or massive token minting. Even though these aspects are thoroughly evaluated within the Risk-Per-Asset process, adopting a more cautious approach to global parameters can further enhance the security of our platform. By being proactive in monitoring and mitigating counterparty risks, we can offer our users a more robust lending environment.
Market Risks - High Risk: The low levels of liquidity and trading volume for certain tokens make their prices highly susceptible to manipulation. A malicious actor with substantial financial resources could easily execute a long or short attack on a desired token. While we mitigate these risks through the use of caps (with a particularly conservative approach for high-risk tokens) and volatility-risks with prudent LTVs, these factors may still play a significant role in the overall platform security. Historically, volatility in these markets has not reached extreme levels, but prudence is still required when adjusting global parameters. This cautious strategy encourages users to liquidate risky positions earlier, further stabilizing the platform.
These considerations have empirically led us to define the following Global Risk Parameters:
Liquidation Threshold - 85%. Typically, the LT is set at 90%. However, in a market with potentially high volatility and manipulable token prices, it is essential to have a robust liquidation system that attracts as many liquidators as possible through appealing rewards. Additionally, a lower LT makes the platform more secure during a black swan event with high volatility levels, where the risk of insolvency is imminent.
Liquidation Fee - 20%. This is the percentage of the Liquidation Profit paid to the platform. For example, if the Liquidation Risk reaches the LT of 85%, the total profit is the complement of the Liquidation Risk, i.e., 15%. Assuming collateral in USDC, the user would earn 150 USDC. A 20% Liquidation Fee means that 30 USDC is sent to the dApp, and the liquidator’s net profit would be 120 USDC.
AI Model. The model has been trained using an LT of 85%. This makes the model more conservative in its predictions.
Risk-Parameters List
Loan-To-Value. Defines the maximum amount of assets that can be borrowed with a specific collateral.
Supply-Cap. It limits the maximum amount of tokens that can be deposited into the dApp.
Borrow-Cap. It limits the maximum amount of tokens that can be borrowed into the dApp.
Freeze Mode. If one token is subject to a negative major event, its market can be temporarly freezed.
Liquidation-Risk. This factor tracks how risky is the loan.
Liquidation Risk Warning. Once LR reach this value, user is alerted of a potential liquidation risk on his dApp Dashboard.
Liquidation Fee. Fee paid to the platform for a liquidation.
Liquidation Threshold. Liquidation-Risk value at which a loan is elegible for liquidation.
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