Supply/Borrow Caps
This page explains how supply and borrow caps help you manage risks while lending/borrowing on Zerolend.
Last updated
This page explains how supply and borrow caps help you manage risks while lending/borrowing on Zerolend.
Last updated
In an event where one of the underlying collateral collapses faster than the risk team can possibly delist or stop the borrowing of that asset, borrow/supply caps start to play a role in limiting the possible bad debt that could occur from within collateral collapse.
Borrow/supply caps are vital for minimizing bad debt when collateral value drops faster than risk management actions. For example, if you supply collateral A and its value decreases, your collateral might be liquidated. To avoid insolvency in such cases, we add borrow caps.
Borrow caps limit the maximum amount of each asset that can be borrowed, protecting against over-leverage during market volatility. For instance, if a cap is 500 units and 450 are borrowed, new borrowing is halted at 500 units.
Supply caps limit the maximum deposit for each asset, reducing exposure to riskier assets. For example, with a 1,000-unit cap, users can’t deposit beyond this threshold.
Default caps are 0, indicating no restrictions, and are adjusted based on liquidity and total asset volume within the protocol.
The default cap for supply and borrow is set at 0, indicating no supply or borrow limit. Caps can be adjusted based on on-chain liquidity and the total volume of assets in the protocol.
