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Risk Management

Rheofi implements a comprehensive risk management framework to protect protocol solvency and safeguard user funds. Multiple layers of configurable parameters and structural safeguards work together to mitigate lending, liquidity, and oracle risks across all supported markets.

Collateral Factor Settings​

Each asset listed on Rheofi is assigned a collateral factor that determines how much borrowing power it provides. Higher-quality, more liquid assets receive higher collateral factors, while volatile or less liquid assets are assigned conservative values. This ensures that borrowing capacity reflects the true risk profile of the underlying collateral.

Liquidation Thresholds​

When a borrower's health factor — the ratio of collateral value to outstanding debt — falls below the liquidation threshold, their position becomes eligible for liquidation. Liquidators repay a portion of the debt and receive the corresponding collateral at a discount. The liquidation incentive is calibrated to attract timely liquidator participation without imposing excessive penalties on borrowers.

Supply and Borrow Caps​

Governance sets supply and borrow caps for each market to limit concentration risk. Supply caps prevent any single asset from dominating protocol exposure, while borrow caps restrict the maximum debt that can be issued against a given collateral type. These caps are regularly reviewed and adjusted based on market liquidity, on-chain depth, and overall protocol utilization.

Market Isolation​

Rheofi's Liquidity Pool architecture enables market isolation. Assets with higher risk profiles can be grouped into isolated pools. If a shortfall occurs in an isolated pool, only participants within that pool are affected, protecting the broader protocol.

Oracle Redundancy​

The Resilient Price Oracle system provides multi-source price feeds with primary, pivot, and fallback configurations. This redundancy ensures that no single oracle failure can compromise protocol pricing, reducing exposure to manipulation and stale data risks. Detailed oracle architecture is covered in the Resilient Price Oracle section.