General Market Risks
Market risks have the most direct impact on the IronLend risk parameters. When market conditions change, risks change. Iron Finance continuously monitors the assets integrated into the protocol which sometimes requires IronLend to adapt the risk parameters for the general benefit of IronLend participants.

Liquidity

The liquidity is based on the volume of the markets, which is key for the liquidation process. This can be mitigated by dynamically adjusting liquidation parameters: the lower the liquidity, the higher the incentives.

Volatility

High price volatility of an asset can negatively affect collateral, threatening solvency of the IronLend protocol. The collateral must cover loan liabilities in order to remain solvent. The risk of the collateral falling below the loan amounts can be mitigated through the level of coverage required, otherwise known as the Collateral Factor. It also affects the liquidation process as the margin for liquidators needs to allow for profit.
The least-volatile currencies are stablecoins, followed by blue-chips (ETH, BTC, MATIC), and thus they have high(er) Collateral Factors (see table).

Market Capitalisation

The market capitalization represents the size of the market, which is important when it comes to liquidating collateral. This can be mitigated through the liquidation parameters: the smaller the market cap, the higher the incentives.

Overall Risk

The overall risk rating is used to calibrate the Reserve Factor with factors ranging from 7% for the less risky assets to 25% for the riskiest.
Last modified 2mo ago
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