Risk Parameters
Solistic Finance Risk Parameters and Risk Management
Solistic Finance implements advanced risk mitigation tools with parameters relating to security, governance, and market conditions across its two lending protocols: S-Lend and Iso-Lend. Each asset within the protocol has specific values related to its risk, which influences how it is supplied and borrowed.
Risk Parameters
Solistic Finance introduces the following risk parameters to provide a higher level of protection against insolvency:
Supply caps define the maximum amount of an asset which can be supplied to the protocol. They are used to limit the protocol's exposure to riskier assets and protect against infinite minting exploits.
Borrow Caps
Borrow caps define the maximum amount of an asset which can be borrowed. They prevent excessive borrowing of assets that may experience price exploits and lead to protocol insolvency.
Isolated Markets (Iso-Lend)
Iso-Lend implements isolated markets to limit systemic risk when listing innovative or riskier assets. Each isolated market:
Consists of a base asset and an innovation asset
Has its own risk parameters and liquidation thresholds
Prevents contagion effects across different asset pairs
Loan to Value (LTV)
The LTV ratio defines the maximum amount of assets that can be borrowed with specific collateral. It is expressed as a percentage.
Liquidation Threshold
The liquidation threshold is the percentage at which a position is defined as undercollateralized.
Liquidation Penalty
The liquidation penalty is a fee applied to the price of collateral assets when liquidators purchase them as part of the liquidation of a loan that has passed the liquidation threshold.
Health Factor
For each wallet, these risk parameters enable the calculation of the health factor:
H_f = (Σ Collateral_i in SOL × Liquidation Threshold_i) / Total Borrows in SOL
When H_f < 1, the position may be liquidated to maintain solvency.
Reserve Factor
The reserve factor allocates a share of the protocol's interest to a collector contract from the ecosystem treasury.
Market Risks and Risk Parameters
Market risks are linked to the size of a particular asset pool in the protocol, as well as fluctuations in both supply and demand.
Liquidity Risk
Market risk assessments use average daily volume representing the availability of the asset to assess liquidity risk: Σ[volume]
Volatility Risk
Volatility risk is based on the normalised fluctuations in the token price and is calculated as the standard deviation of the logarithmic returns.
Market Capitalisation
Market capitalisation represents the size of the market and potential exposure. In the context of Iso-Lend's isolated markets, market capitalisation is particularly important for assessing the risk profile of innovation assets.
To further mitigate volatility risks, Solistic Finance maintains a stability fund. This fund serves as an additional layer of protection, helping to cover potential losses in extreme market conditions and reinforcing the overall stability of the protocol.
Solistic Finance's dual protocol approach, combining S-Lend's unified market with Iso-Lend's isolated markets, allows for a nuanced and comprehensive risk management strategy. By implementing various caps, limits, and dynamic parameters, Solistic aims to maximize capital efficiency while maintaining robust protections against market volatility and potential exploits. The integration of detailed market risk assessments and the Solistic Shield Stability Fund further enhances the protocol's resilience and user protection.
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