Collateral Limits & Specific rates

The Quota Control system is the protocol's mechanism for managing concentration risk and pricing asset-specific exposure. While the Liquidity Pool provides a shared source of capital, the Quota system enforces strict limits on how that capital can be allocated toward specific collateral assets and applies additional risk premiums where necessary.

Asset-Side Caps (Concentration Limits)

To protect Liquidity Providers (LPs) from over-exposure to specific assets, the protocol enforces Quota Limits. These are hard caps on the total amount of debt that can be collateralized by a specific token across all Credit Managers attached to a pool.

Mechanism

Unlike a global debt ceiling which limits the total size of the pool or Credit Manager limits which define maximum exposure to particular strategies, Quota Limits operate on the collateral side.

• Exposure Calculation: The system tracks the total value of borrowing power currently backed by a specific asset (e.g., $WBTC).

• Enforcement: If the total exposure reaches the defined Quota Limit, the system blocks any transaction that would further increase exposure to that asset.

  • New Credit Accounts cannot be opened with that collateral.

  • Existing accounts cannot increase the amount of debt that is backed by particular token.

  • Repayments and closures remain enabled to allow deleveraging.

This architecture ensures that even if a pool has abundant idle liquidity, it cannot be drained into a single illiquid or high-risk strategy beyond the safety parameters defined by the Curator.

Quota Rates (Risk Premium)

The Quota system decouples the cost of liquidity from the cost of risk. It allows the protocol to charge an additional interest rate—the Quota Rate—based specifically on the collateral held by the borrower.

The Additive Rate Model

The total cost of borrowing before fees is the sum of the base cost of capital and the specific risk premium of the collateral.

$$\text{Total APR} = \text{Base Rate} + \text{Quota Rate}$$

• Base Rate: Determined by the utilization of the Liquidity Pool. This represents the opportunity cost of the underlying asset (e.g., USDC).

• Quota Rate: Determined by the specific collateral asset (e.g., a volatile governance token). This represents the risk premium for holding that specific asset.

Pricing Granularity

This separation allows for granular risk pricing within a single pool:

• Low-Risk Collateral: Borrowers using blue-chip assets (e.g., WETH) may pay only the Base Rate (Quota Rate = 0%).

• High-Risk Collateral: Borrowers using volatile or less liquid assets must pay the Base Rate plus a significant Quota Rate (e.g., +5%).

This ensures that borrowers using safe collateral do not subsidize the risk of those using volatile collateral, improving capital efficiency for low-risk strategies while properly pricing tail risk.

Learn More

• Base interest calculation: How does pool utilization determine the underlying cost of capital?

  • Interest Rate Model

• Parameter configuration: Who configures these limits and what parameter ranges are allowed?

  • Risk Configuration Dictionary

• Protocol fees: How is interest revenue captured and shared between the Protocol DAO and the Market Curator?

  • DAO & Curators' business model