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.