Risk Parameter Adjustment

Definition ∞ Risk parameter adjustment refers to the modification of configurable settings within a decentralized finance protocol or a centralized digital asset platform that govern the level of risk exposure. These parameters include collateral ratios, liquidation thresholds, interest rates, and loan-to-value limits. Adjustments are typically made in response to changing market conditions, asset volatility, or governance proposals to maintain the system’s stability and solvency. These changes directly impact user positions and overall protocol health.
Context ∞ Risk parameter adjustments are frequently discussed in news concerning decentralized lending protocols and yield farms, particularly during periods of high market volatility. Governance proposals for modifying these parameters are closely watched, as they can significantly impact user strategies and the financial health of the protocol. The ongoing challenge involves balancing security and capital efficiency through dynamic and responsive risk management.