Risk Parameters

Chedda lending pools can be configured with various risk parameters that allow support for a wider range of assets than other lending protocols. For a token to be integrated in a lending pool it must meet minimum metrics including liquidity, market cap. Tokens with higher risk profiles are set up with stricter risk parameters.

Tokens on Cheda are classified under the following tiers:

1. Widely circulated stable coins. e.g USDC

2. Other stable coin. e.g DAI

3. Blue chip assets; e.g BTC, ETH

4. Mid tier assets; e.g high market cap tokens with deep liquidity ($100M+ m.cap $10M+ liq)

5. Riskier assets; e.g mid market cap tokens with sufficient liquidity ($10M+ m.cap $1M+ liq)

Assets fall within each group and are classified as follows

Asset Tier	Asset Clas	Market Cap	Liquidity	Volume (24h)
Tier 1	Well circulated stable coin	$10 B	$50 M	$100M
Tier 2	Top grade asset (BTC, ETH)	$10 B	$ 10M	$1 B
Tier 3	Top tier crypto	$1 B	$10M	$10M
Tier 4	Mid tier crypto assets	$100 M	$1 M	$1m
Tier 5	Smaller crypto tokens	$10 M	$250K	$100K

In addition to these requirements, all assets on Chedda must meet all these additional requirements:

1. Token contract audited by reputable 3rd party.

2. Owner not having admin rights to mint more tokens.

The risk parameters are set as follows based on the asset tier.

Tier	LTV	Liquidation Threshold
Tier 1	85%	93%
Tier 2	80%	90%
Tier 3	70%	85%
Tier 4	50%	65%
Tier 5	25-45%	45-65%

The following risk parameters are configured per token or by lending pool.

Supply Caps

Supply caps limit the amount of a token that can be supplied in a pool. This limits the pools' exposure to the token. The supply cap is set in an absolute value, representing the maximum amount of an asset that can be deposited in a pool.

For example, a Tripcrypto pool would have a supply cap for ETH set to 1000 ETH.

Borrow Caps

Borrow caps are set per collateral token, and represent the amount of an asset that can be borrowed with the given collateral. Borrow caps ensure that in case of adverse market conditions, the collteral can be efficiently liquidated.

Borrow caps are set at a percentage of the average daily trading valume and can be adjusted to reflect changing market conditions.

Example: The borrow cap for a meme coin might be set at 100 ETH, meaning, up to 100 ETH can be borrowed with that asset used as collateral

Isolated Collateral Mode (ICM)

Collateral tokens in a pool share liquidity, not their collateral values. Isolated Collateral Mode is set on pools with risker collaterals so that only one token can be used as collateral to borrow the pool asset per account, at a time. This enables multiple collateral tokens to share liquidity of the pool asset, while limiting cross-asset risk in the pool.

Example: In a meme coin collateral pool two popular meme coins, DOGE an SHIB can be used as collateral to borrow ETH. Any given account can open a new loan with either meme coin as collateral, but can take a loan using both DOGE and SHIB.

Isolation mode is the default mode of collateral on Chedda. Pools that do not operate in isolation mode operate in shared mode.

Loan to Value

The loan to value sets the maximum asset value that can be borrowed per collateral value. Riskier assets have lower LTVs. Less risky assets such as stable coins have a higher LTV close to 90% and more risky assets have a lower LTV, typically less than 50%.

The max amount an account can borrow is dependent on the LTV of collaterals.

In shared mode, this is calculated as:

$$MaxBorrow = ∑(CollateralValue_i * LTV_i)$$

In isolated mode, the max borrow is calculated as:

$$MaxBorrow= CollateralValue * LTV$$

If an account has multiple collateral tokens deposited in isolated mode, only the designated collateral value is used to determine the max borrow amount.

Health Factor

The health factor is a measure of how solvent a position is. The health factor for a position is calculated as:

$$HF = ∑ (CollateralValue_i * LiquidationThreshold_i) / DebtValue$$

A health factor > 1 represent a solvent account and a health factor < 1 represents an insolvent account. Insolvent accounts can be liquidated.

Liquidations

An account with a health factor < 1 can be liquidated. In a liquidation event, the liquidator buys the collateral backing the position at a discount and repays the loan, so the pool stays fully collateralized.

Any market participant can participate in liquidations, provided the supply the asset amount being liquidated.

Reserve Factor

The reserve factor represents the percentage of the interest earned on the platform that is retained by the protocol. A reserve factor of 10% means 10% of interest is retained by the protocol and 90% goes to liquidity providers.

Final Backstop

Chedda pools are constantly monitored and any positions that are insolvent are efficiently liquidated before the protocol is left with bad debt. In exceptional events where an insolvent position is not liquidated on time, this can lead to bad debt where there is a shortfall of assets. In this case, there are 3 steps that can be taken to return the pool to solvency:

1. Recapitalize from pool reserve

2. Recapitalize from other pool reserves.

3. Sell $CHEDDA tokens from pool locking gauge.

These steps are taken in order if the first step is not sufficient to recapitalize the pool.More on step 3 can be found in the shortfall event handler section.