Risk Management
Astrolend Risk Management Model
Astrolend employs a comprehensive risk management framework designed to support a broad range of assets while maintaining the stability and security of the protocol. This model includes the concept of Asset Risk Tiers and a sophisticated risk engine to ensure that lending and borrowing activities are conducted safely, especially on the Eclipse blockchain where market dynamics can vary significantly.
Asset Risk Tiers
Astrolend categorizes assets into three distinct risk tiers, allowing for a more nuanced approach to managing different types of tokens, particularly those with unpredictable liquidity:
Collateral Tier:
This is the standard asset risk tier, akin to traditional lending protocols. Assets in this tier can be deposited, borrowed, and used as collateral within the protocol’s established limits. It is reserved for assets with higher liquidity, providing a stable foundation for lending and borrowing activities.
Borrow-only Tier:
Assets in this tier have a deposit weight of 0, meaning they can be borrowed but not used as collateral. This tier is ideal for assets that may not have sufficient liquidity to serve as reliable collateral but are still in demand for borrowing.
Isolated Tier:
This tier is designated for higher-risk assets. Assets in the Isolated Tier cannot be used as collateral and are isolated within a borrower's portfolio. When an asset from this tier is borrowed, no other assets can be borrowed simultaneously. Borrowing in this tier is backed by assets in the Collateral Tier, providing a layer of protection while accommodating the need for riskier assets.
Risk Engine
Astrolend’s risk engine is designed to estimate and manage the risk associated with lending and borrowing activities, particularly under volatile market conditions. The engine focuses on three key components:
Liquidator Execution Capacity:
The risk engine evaluates how quickly liquidators can execute liquidations. This capacity is influenced by various constraints on the liquidator side, such as the speed and efficiency of executing liquidation orders. The faster the liquidators can act, the more secure the protocol remains during market fluctuations.
Market Depth:
To ensure that liquidations remain profitable, the risk engine conservatively assesses market depth—the maximum amount of an asset that can be sold or bought without significantly impacting its price. The engine assumes that liquidators will only continue liquidations when they can offload assets profitably, relative to Astrolend’s fixed liquidator discount of 2.5%.
Market Depth Recovery Time:
After a significant buy or sell order, market depth may be disrupted, requiring time to return to typical levels. The risk engine estimates the recovery time needed for market depth to stabilize, ensuring that the protocol can handle ongoing liquidations without compromising asset prices or liquidity.
By incorporating these components, Astrolend’s risk management model effectively balances the need to support a wide array of assets with the requirement to maintain a secure and stable lending environment. This approach ensures that users can confidently engage in lending and borrowing activities on the Eclipse Network, knowing that their assets are managed within a robust and well-considered risk framework
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