📊Accepted Collateral Types

This section outlines how Seismic determines which assets the protocol supports.

Collateral Types

Generally, stablecoins are used for borrowing against more volatile collateral assets. For this reason, the users of the protocol stand to hugely benefit from the addition of stablecoins; the risks are offset by the condition they can't be used as collateral.

Market risks are contained through Seismic's risk parameters, which define the rules of collateralization and liquidation. The exact parameters are calibrated per asset to account for their specific risks.

Collateral Parameters

Each asset listed on Seismic has a predetermined value relative to their risk. This influences how they may be loaned and borrowed.

While it would be ideal, token security concerns on a smart contract bases are not able to be considered for integration due to uncontrollable risk. Additionally, any tokens with single counter-party exposure cannot be used due to the risk profile.

Risk Parameters Change

Risk parameters on accepted deposits are monitored and adjusted based on the impact of market conditions.

Risk Parameters Analysis

The risk parameter affords us the ability to reduce the market risk of supported currencies. Each loan is guaranteed by a collateral position which may be impacted by volatility. To keep the loan collateralized in a market downturn, ample incentive and margin are needed. If the collateral value causes your position to fall below a Health Factor of 1, part or all of the position is auctioned to repay the loan and keep the remainder of the loan (if any) ongoing.

From Market Risks to Risk Parameters

There are three levels to market risk assessments, and each has a different effect on risk parameters:

Liquidity

Liquidity is based on the volume on markets, which is imperative to the liquidation process. Through higher incentives during periods of lower liquidity, which can be mitigated through adjusted liquidation parameters.

Volatility

Collateral can be negatively impacted by the volatility of the asset which can impact the solvency of the protocol. The adjustment of LTV requirements can help sustain solvency by mitigating increased risk of under-collateralization.

This volatility also affects liquidation process as it acts as the margin for liquidator profit.

The less volatile currencies are stablecoins followed by ETH, they have the highest LTV at 75%, and the highest liquidation threshold at 80%.

More volatile currencies will have lower LTV ratios and lower liquidation thresholds. This is to protect users from sharp price changes that could lead to liquidation due to under-collateralization.

Market Capitalization

Market Capitalization is a number representing the size of the market. This is an important metric for liquidating collateral assets. The liquidation parameters can offset this risk factor: lower market cap, higher incentives.

Oracles Utilized

Seismic uses API3 Oracles and RedStone Oracles to determine value of borrowed assets and collateral. Learn more on the price feeds used and RedStone’s architecture at https://docs.redstone.finance/docs/smart-contract-devs/price-feeds.