Risk Management

Each collateral and numeraire pair within the Arcadia Protocol has specific risk values, which influence how assets are supplied and loans are issued.

Each asset has a different underlying risk, and it is crucial for users to understand the smart contract security, centralization risk, and market risks. Collateral and numeraire assets are onboarded with carefully designed risk mitigation parameters.

Risk Parameters

Arcadia Protocol employs three main risk mitigation parameters:

1. Collateral Factor

2. Liquidation Factor

3. Supply Caps

These parameters help manage the market risk of supported collateral assets and are used for the Margin Calculation of Arcadia Accounts.

Collateral Factor

Determines the numeraire amount available as debt for a collateral asset. The factor depends on:

• Asset quality

• Security risk

• Market risk

Liquidation Factor

Used to:

• Determine when a collateral asset will be auctioned to pay off debt

• Calculate fair starting prices in auctions

The factor depends on:

• Asset quality

• Volatility relative to numeraire asset

Supply Caps

Limits exposure to a single collateral asset or to a single type of asset by defining:

• Maximum numeraire debt for a given collateral

• Based on the on-chain liquidity of the collateral asset and the risk associated with the asset type.

Detailed Methodology

For a comprehensive understanding of our risk parameter methodology, visit our detailed research document.

Continuous Monitoring

We continuously monitor risk parameters to adapt to changing market conditions. Users can access our detailed risk dashboard, powered by LlamaRisk, here.