Protocol Safety Features

These ensure a secure environment for users within the protocol

Each asset listed in the Carbon money market has discrete values associated with their risk, which shapes how they are supplied and borrowed within the market.

It is crucial for the Carbon community to understand the underlying risk of each asset by

  • Assessing the smart contracts security

  • Understanding the risks of centralisation

  • Understanding the market risks

In a nutshell, listed assets introduce their risks to Carbon's money market. To retrieve the relevant values directly from the smart contracts, see the Carbon Developer Docs.

Supply and Borrow Caps

Supply and Borrow caps restrict each asset to have upper bounds on supply and borrow (optional). This helps in reducing exposure to certain assets and mitigates infinite minting or price oracle manipulation risks.

Supply Cap

Supply caps specify the maximum amount of an asset supplied to the Carbon money market.

Supply caps can be used to:

  • Limit our money market’s exposure to riskier assets

  • Limit the amount of volatility within the protocol’s collaterals

  • Protect against infinite minting exploits

For example, if a new token with a low market capitalization is listed, its price could swing wildly (or drop to 0), causing liquidations that cannot be unwound in time due to the collateral price dropping rapidly.

A supply cap is an optional parameter, and its value will depend on the:

  • On-chain liquidity of the asset

  • Total volume of collateral assets in the market

By limiting the amount of such tokens that can be used protocol-wide, the total potential protocol deficit can be limited.

Borrow Cap

Borrow caps specify the maximum amount of an asset that can be borrowed from the Carbon money market.

Borrow caps can be used to:

  • Prevent traditional and flash borrowing of an asset, which may be vulnerable to price exploits, resulting in market insolvency

  • Restrict the amount of short interest that can be expressed on an asset

Listing a token with a low market capitalization may cause protocol instability if the amount of token borrowed and sold (i.e. short interest) is high relative to its circulating supply. This is because a downward spiral in price can occur, if the same token is being used as collateral and being liquidated as its price drops.

A borrow cap is an optional parameter, and the value will depend on the:

  • On-chain liquidity of the asset

  • Total volume of borrowed assets in the market

Isolation Mode πŸ”œ

Isolation mode allows Carbon governance to list new, riskier assets as isolated assets.

How does isolation mode affect my borrowing power? Upon entering isolation mode, you will be limited to borrowing stablecoins.

In order for an asset to become approved for borrowing, it must be voted on by $SWTH token holders through Carbon governance.

Please refer to Carbonscan for the list of available stablecoins.

Isolation mode can be used to limit the systemic risk of listing riskier assets.

Isolation mode limits an asset to:

  • Only borrow isolated stablecoins

This restricts users using that asset as collateral to not be able to borrow non-stablecoin assets. This reduces liquidation risk as the market risk is only on the isolated asset price dropping and not on the borrowed asset price increasing.

  • Only use a single isolated asset as collateral at a time

This avoids commingling of collateral, with the principal benefit being that in a mixed-collateral position, liquidators are forced to unwind this asset (removing contagion from the system) instead of avoiding it and seizing other β€œgood” assets, leaving the risky asset behind.

Siloed Mode πŸ”œ

Newly listed assets with (potentially) exploitable oracles can be listed under Siloed Mode to limit the overall risk of insolvency of the money market.

A siloed asset restricts the borrower to single borrows only (i.e. a user borrowing a siloed asset cannot borrow any other asset).

Last updated