Risk Parameters in decentralized finance are configurable settings within smart contracts that govern the level of exposure to various financial risks for users and the protocol itself. These parameters include collateral ratios, liquidation thresholds, interest rate models, and maximum loan-to-value limits. They are adjusted by governance mechanisms to maintain protocol stability and protect against market volatility. Careful calibration of these parameters is essential for managing systemic risk.
Context
Risk parameters are frequently discussed in DeFi news, especially during periods of market volatility or when governance proposals aim to adjust protocol settings. Reports often analyze the impact of parameter changes on user behavior and protocol solvency. Understanding these settings is crucial for assessing the safety and stability of decentralized lending and borrowing platforms.
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