Risk Management

Risk Parameter Adjustment

At Extrafi XLend, risk parameters are continuously monitored and adjusted to better adapt to changing market conditions, ensuring the safety and efficiency of the protocol. Below is an overview of the key risk parameters and their roles:

1. Supply/Borrow Cap

• Definition: The maximum amount of an asset that can be supplied or borrowed within the protocol.

• Purpose:

  • To prevent overexposure to specific assets.

  • To mitigate the impact of market volatility on protocol liquidity.

• Adjustment:

  • Based on asset utilization rates, volatility, and market demand.

  • Caps are periodically reviewed to ensure alignment with current liquidity and risk profiles.

2. Maximum Loan-to-Value (Max LTV)

• Definition: The maximum ratio of a loan value that can be borrowed against the collateral value.

• Purpose:

  • To balance borrowing flexibility with risk management.

  • Ensures the protocol can cover potential losses during market downturns.

• Adjustment:

  • Evaluated based on asset stability, liquidity, and price volatility.

  • Adjusted to account for shifts in market conditions or asset-specific risks.

3. Liquidation Threshold

• Definition: The collateral value percentage below which a position is eligible for liquidation.

• Purpose:

  • To protect the protocol from insolvency by triggering liquidation before collateral value becomes insufficient to cover the debt.

• Adjustment:

  • Regularly updated based on market volatility and asset liquidity.

  • Higher thresholds for volatile or illiquid assets to provide additional safety.

4. Asset Isolation

• Definition: The segregation of certain high-risk or experimental assets to limit their impact on the broader protocol.

• Purpose:

  • To reduce systemic risk from assets with unpredictable behaviors or low liquidity.

  • Protects the protocol from contagion effects due to extreme events involving isolated assets.

• Adjustment:

  • Assets may be added to or removed from isolation status based on performance metrics and risk assessments.

  • Isolation parameters are reviewed in collaboration with risk management partners.