Key Risk Parameters
Bima protocol employs several risk parameters to ensure the stability of the platform, protect user assets, and mitigate risks associated with borrowing, staking, and liquidation. These key risk parameters are designed to maintain the health of the protocol and protect against potential market volatility and other risks:
Collateralization Ratio (CR) The collateralization ratio is the percentage of collateral required to secure a loan. This parameter ensures that every loan on the platform is backed by a sufficient amount of collateral. For example, if the CR is 225%, users must maintain collateral valued at 225% of their loan amount. Falling below this ratio triggers liquidation, ensuring that the platform remains solvent.
Liquidation Threshold This parameter defines the minimum collateralization ratio that a user must maintain. If the value of the collateral falls below this threshold due to market volatility, the position is flagged for liquidation. The liquidation threshold helps protect the platform from under-collateralized loans.
Liquidation Penalty Bima protocol applies a liquidation penalty to users whose positions fall below the required collateralization ratio. This penalty incentivizes liquidators to repay the debt and liquidate the collateral. The liquidation penalty typically involves selling collateral at a discount, which means that users may lose more collateral than just the loan amount.
Stability Fee The stability fee is an interest rate charged on loans (in USBD) to compensate the platform for the risk of lending. It serves as an incentive for users to repay their debt on time and ensures the sustainability of the protocol. The stability fee can fluctuate based on market conditions and governance decisions.
Debt Ceiling The debt ceiling is a cap on the total amount of USBD that can be borrowed against a particular collateral type. This prevents excessive borrowing against a single asset, reducing systemic risk and exposure to market volatility. Once the debt ceiling is reached, no additional borrowing is allowed until some loans are repaid.
Minimum Collateral Amount This parameter sets a floor for the amount of collateral required to initiate a borrowing position. It prevents users from opening small, inefficient positions that could be vulnerable to liquidation due to minor price fluctuations. By maintaining a minimum collateral amount, Bima protocol ensures that positions remain secure.
Price Feed and Oracle Risk Bima protocol relies on decentralized oracles to provide real-time market prices for collateral assets. The accuracy and security of these price feeds are critical for determining collateralization ratios and triggering liquidations. Any manipulation or delay in price data could impact the system's health, making this a key risk parameter.
Slippage Tolerance During liquidations, collateral is sold on the open market to repay the debt. Slippage tolerance refers to the acceptable price deviation during these sales. High slippage can lead to losses for the platform and users, so maintaining low slippage during liquidation processes is critical for ensuring efficient and fair liquidation outcomes.
Interest Rate Sensitivity Bima protocol may adjust interest rates on loans (stability fees) or rewards based on market conditions and demand for borrowing. A flexible interest rate model allows the platform to adapt to market shifts, but it also poses the risk of increasing borrowing costs, which could affect user participation.
Liquidity Risk This refers to the availability of collateral assets and stablecoins (USBD) for borrowing and staking. Bhima protocol ensures that there is sufficient liquidity in the vaults to handle withdrawals and liquidations. However, low liquidity could pose a risk if users want to withdraw or liquidate during periods of high demand.
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