---
# System prepended metadata

title: Compound

---

# Compound

## Market risk
1. Shocks to market prices of collateral that cause
the contract to become insolvent due to undercollateralization
2. Loss of liquidity in an external market place, leading
to a liquidator being disincentivized to liquidate defaulted collateral
3. Cascades of liquidations impacting external market
prices which in turn lead to further liquidations (i.e. a
deflationary spiral)

## Asumption

Rational liquidator: purchase collateral then immidiately sell it on a CEX


## Key market variables

Outstanding debt = sum of outstanding debt of all borrowers / average daily trading volume
-> capture debt size relatively to liquidity

Asset volatility: sweeping through a variety of different volatility levels 

## Stress tests

Use Agent-based simulation in Gauntlet simulation environment
- track gas
- standard Geometric Brownian motion to simulate price trajectories

## Key question

- Is the protocol safe when the total outstanding debt is
high?
- Is the protocol safe under volatile market conditions?

## Metric

Under-collateralized run is a run ends up with > 1% of total outstanding debt is under-collateralized

## Interest curve

U: Utilisation rate
B: borrow demand
L: liquidity supply
- U = B/(L+B)

## Params

- USDC: 
    - Collateral Factor: 85%
    - Reserve Factor: 7%
    - Borrow Cap: No Limit

- DAI
    - Collateral Factor: 83%
    - Reserve Factor: 15%
    - Borrow Cap: No Limit

- ETH: 
    - Collateral Factor: 70%
    - Reserve Factor: 20%
    - Borrow Cap: 29.46M

- BTC
    - Collateral Factor: 83%
    - Reserve Factor: 15%
    - Borrow Cap: No Limit

- USDT: 
    - Collateral Factor: 0%
    - Reserve Factor: 7%
    - Borrow Cap: No Limit

- BTC (Legacy)
    - Collateral Factor: 70%
    - Reserve Factor: 100%
    - Borrow Cap: No Limit



? Why not USDT