Risk Parameters
Understanding the Parameters
Each Risk Group defines six key parameters:
LTV (Borrow)
Maximum loan-to-value ratio for borrowing
20-80% (depends on asset
LTV Partial
LTV threshold where partial liquidation begins
40-90% (depends on asset
LTV Full
LTV threshold where full liquidation is allowed
55-95% (depends on asset
Penalty Min
Minimum liquidation penalty (bonus to liquidator)
5%
Penalty Max
Maximum liquidation penalty at full liquidation
10%
Curve Exponent
How penalty scales between min and max
1.0 (linear)
Parameter Relationships
Borrow < Partial < Full
These thresholds create a safety buffer system:
Borrow at 70% provides room before liquidation starts at 85%
Partial at 85% allows targeted liquidations to restore health and for users to add collateral before full liquidation
Full at 90% permits complete position clearing for severely unhealthy positions
Graduated Penalties
The penalty scales from min to max as position health deteriorates:
At Partial threshold: 5% penalty
Between Partial and Full: penalty increases linearly
At Full threshold: 10% penalty
All Risk Groups
Stable Collateral → Stable Debt
These groups offer the highest LTV ratios due to predictable price relationships and high liquidity.
Rationale: Bitcoin-backed collateral against USD stablecoins is low-risk. The high LTV provides strong borrowing capacity.
Volatile Collateral → Stable Debt
Moderate LTV ratios account for collateral price volatility while debt remains stable.
Rationale: e.g STX and its derivatives (staked, liquid staked) can experience significant price volatility. A lower LTV provides substantial buffer against price drops while still offering meaningful borrowing capacity.
Stable Collateral → Volatile Debt
Conservative LTV when borrowing volatile assets, even with stable collateral.
Rationale: e.g While USDC collateral is stable, STX debt can appreciate significantly. If STX doubles in price, your debt value doubles. The lower LTV protects against this risk by ensuring collateral can cover debt even through substantial STX appreciation.
BTC/STX Based Collateral → Multi-Asset Debt
Very conservative parameters for complex, multi-asset debt positions.
Rationale: When borrowing multiple asset types, the position faces multi-directional risk. Each debt asset can move independently, creating complex correlation scenarios. Lower LTVs protect against compounding risks.
Highly Correlated Assets
Maximum LTV for assets that move together, minimizing liquidation risk.
Rationale: When collateral and debt are the same asset or highly correlated (e.g STX/stSTX), liquidation risk is minimal. Price movements affect both sides equally. These groups enable high capital efficiency for strategies like:
Recursive staking (borrow STX, stake for stSTX, use stSTX as collateral)
Yield farming with borrowed assets
Leverage on correlated positions
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