> For the complete documentation index, see [llms.txt](https://docs.blend.capital/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.blend.capital/pool-creators/adding-assets/risk-parameters.md). # Risk Parameters Pool creators use the following parameters to control asset risk. These parameters must be set for each asset in the pool. ### Collateral Factor An asset's collateral factor modifies the asset value when used as collateral. Asset collateral factors must be set to less than or equal to 1. When used as collateral, an asset's value is calculated using the following equation. $$Effective CollateralValue= CollateralFactor \* CollateralValue$$ Generally, an asset's collateral factor should be set lower the riskier an asset is. If an asset shouldn't be collateralized at all, the collateral factor should be set to 0. ### Liability Factor An asset's liability factor modifies the asset value when borrowed. Liability factors must be set to less than or equal to 1. An asset's value, when borrowed, is calculated using the following equation. $$EffectiveLiabilityValue=LiabilityValue\*LiabilityFactor$$ Generally, an asset's liability factor should be set lower the riskier an asset is. If an asset isn't intended to be borrowed, its liability factor should be set to 0. ### Utilization Cap Pool creators can set asset utilization caps to prevent more than a certain percentage of an asset from being borrowed. This parameter is useful for protecting lenders in the case of an oracle failure. For example, by setting the utilization cap of assets primarily used as collateral to 25%, no more than 25% of deposits can be stolen during an oracle attack. ### Supply Cap Pool creators can set a collateral cap for assets. This limits the total number of tokens that can be supplied to the pool. Pool creators should use this parameter to limit the pools exposure to long tail and volatile assets they want to use as collateral. It's also VERY important that they use it to protect the pool from issuer risks. Centralized assets (real world assets and stablecoins) can be infinitely minted by their issuers if the issuer becomes malicious or compromised. Setting collateral caps on these assets limits the amount of damage that can be done if such a scenario occurs. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation by asking a question. Perform an HTTP GET request on the following URL with the `ask` and `goal` query parameters: ``` GET https://docs.blend.capital/pool-creators/adding-assets/risk-parameters.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is what the user is ultimately trying to achieve, the reason they need the answer. Sharing it helps GitBook give you a better, more relevant answer. A goal is most helpful when it describes the outcome the user wants rather than restating the question. For example, with `ask=how do I create an API token`, a goal like `automate deployments from our CI pipeline` lets GitBook tailor the answer to that use case. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.