With the recent changes to Twitter, our team will be cross-posting blog content from to our page here.
06 Sep 2023, 14:37
With the recent changes to Twitter, our team will be cross-posting blog content from to our page here.
If you haven't read about our recent changes to collateral ratios: now is your chance! Keep on reading to learn about the nuances of Ethos Reserve collateral and how we maintain such a strong peg.
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As we continue to build Ethos V2, we consistently consider methods to better balance risks and rewards for borrowers, stability pool depositors, and the protocol.
In our research, we’ve discovered a number of interesting quirks associated with Liquity’s price feeds as well as developed a more nuanced framework for managing Minimum Collateral Ratios (MCR) and Critical Collateral Ratios (CCR). We will write more extensively about this as we come closer to the launch of Ethos V2.
/EthosReserve/status/1699431673379590363/photo/3
Most importantly for users: we’ve made three key determinations:
The most important parameter for risk management is the CCR (by a large margin).
This is because Ethos doesn’t allow lending that would put the collateral ratio of a given pool under the CCR, and recovery mode ensures strict adherence to this specification. Optimal CCRs will therefore allow the platform to be the first party to offboard distressed collateral while still maintaining the most competitive LTV through the MCR.
The primary function of the MCR is in determining liquidation rewards, not managing risk.
Due to the properties of the CCR described above, the MCR doesn’t play a big role in risk management. As long as there is a sufficient buffer to liquidate the collateral and provide a reasonable premium for stability pool depositors, the MCR can be extremely low.
In determining the MCR, the most important factors are the performance of liquidators and desirability of collateral (a function of volatility, liquidity, and demand). Higher MCR equates to higher reward for stability pool depositors but more risk overall for borrowers and the protocol, and overall fewer liquidations.
Lower MCRs are healthier for the protocol AND the user.
For the protocol, this reduces margins for MEV bots who would seek to maximize their liquidation profit and ensures liquidators adhere to the system specification.
For borrowers, it makes liquidations overall less punishing, and gives them a greater margin for error during volatile periods. Additionally, by making the platform more attractive to users of leverage, the frequency of reward for stability pool depositors increases.
/EthosReserve/status/1699431673379590363/photo/1
Using our new approach to risk management, along with insights from Ethos’ three months in production, we will be making a couple of important changes to the system parameters for $WBTC and $OP collateral
/EthosReserve/status/1699431673379590363/photo/2 .
Liquidity conditions for WBTC continue to improve on Optimism and direct Coinbase and Binance integration allows market makers to maintain parity on-chain with centralized exchanges.
/EthosReserve/status/1699431673379590363/photo/4
With the first big vesting cliff for $OP behind us, our team feels more comfortable bringing its collateral ratios in line with network standards.
These changes will not only make Ethos a more desirable place for borrowers, but will net significant benefits to every party involved. We will continue to monitor the platform and improve our risk management methodology to make improvements to Ethos Reserve and thank you all for using $ERN.
Please join us in if you have any questions, comments, or concerns about these changes!
Same news in other sources
106 Sep 2023, 23:43
Read about how Ethos Reserve maintains the most competitive yields in the industry~
Read about how Ethos Reserve maintains the most competitive yields in the industry~.
Read about how Ethos Reserve maintains the most competitive yields in the industry~