Risk Management Mechanisms

The liquidation mechanism is implemented to protect liquidity providers and the FILLiquid pool from potential losses. When the collateral value falls below a specified threshold for borrowers, the mechanism automatically triggers the sale of the collateral to repay the loans.

To maintain responsible borrowing practices and prevent misuse, each miner is allocated five (5) loan slots, and it is mandatory for miners to repay at least one loan before borrowing a fourth.

Furthermore, the total value of the three loans must remain within the miner's credit line (or family's credit line). This restriction ensures that malicious borrowers cannot continuously borrow without repayment or attempt to exploit the system by dividing a large loan into multiple smaller fractions to invalidate the ex-post utilization mechanism, as FILLiquid does not require borrowers to specify the borrowing term.

Miners must borrow a minimum amount of 10 FIL, while the miner's credit line determines the maximum borrowing amount.

Liquidity providers can stake any amount they desire, starting from as little as 1 FIL. This flexible staking range enables liquidity providers to participate according to their preferences and available resources.

Introducing these mechanisms and the community's involvement in the governance process contribute to a robust risk management framework. The framework strengthens the network's security and integrity, ensuring that malicious actors are appropriately dealt with to maintain a safe and reliable ecosystem.