Risk Management in Lending Pools

Effective risk management is the core of lending pool design, ensuring the platform's stability and the security of user assets. The Arca Chain platform introduces a variety of risk management mechanisms, including risk avoidance theory and risk diversification principles, to address market volatility and lending default risks.

• Over-Collateralization: Borrowers are required to provide over-collateralization, a mechanism based on risk avoidance theory, reducing default risk and ensuring the security of the lending pool's funds. Over-collateralization requires borrowers to provide collateral of higher value than the loan amount when borrowing BTC or other assets.

• Automated Liquidation: Smart contracts have an automated liquidation mechanism, where the system automatically sells collateral to repay the loan when the value of the collateral falls below a set threshold. This liquidation mechanism aligns with the 'trigger point' theory from option pricing models, ensuring the stable operation of lending pools.

• Risk Assessment and Adjustment: The platform regularly assesses the risk status of the lending pool and adjusts collateral rates and liquidation thresholds based on market conditions to ensure the stability and risk resilience of the lending pool.