Risk parameters

Collateralized debt obligations have different risk parameters that determine their use. Each type of collateralized debt obligation has its own unique set of risk parameters determined by the risk profile of the collateral used by that type of collateralized debt obligation. These parameters are controlled directly by governance token holders, with one token giving the holder one vote.

Key risk parameters for collateralized debt obligations:

Maximum debt level.

The maximum debt level is the maximum amount of debt that can be created by one type of collateralized debt obligation. Once a certain amount of debt has been accumulated within a collateralized debt obligation of a certain type, the creation of additional debt becomes impossible until the existing collateralized debt obligations are closed. The maximum level of debt ensures that the collateral portfolio is diversified.

Liquidation Ratio.

The liquidation ratio is the ratio of collateral to debt at which the collateralized debt obligation is in danger of liquidation. A low liquidation ratio means that holders of the governance token expect low volatility in the collateral price, while a high ratio means that high volatility is expected.

Stability Commission.

Stability commission is a commission payment made by each collateralized debt obligation. It is charged as a percentage per year, in addition to the existing debt on the collateralized debt obligation, and is paid by the user of the collateralized debt obligation. The stability fee is denominated in DurovUSD, but can only be paid using the governance token. The amount payable is calculated based on the quoted market price. Upon payment, the token is destroyed and permanently removed from the market.

Penalty Percentage.

The penalty percentage is used to determine the maximum amount of DurovUSD received during the liquidation auction. This amount is used to purchase tokens and remove them from the market. The excess portion of the pledge is returned to the user of the debt pledge who owned it before liquidation. Penalty interest is used to compensate for inefficient liquidation.