Understanding Collateral Factors in Lending
It represents the maximum amount a user can borrow, expressed as a percentage of the total value of assets they have supplied as collateral.
Liquidity and Volatility Considerations
Generally, more liquid or less volatile assets tend to have higher collateral factors.
Users can manage their positions and minimize liquidation risks by understanding the collateral factor.
Managing Risk with Collateral Factors
These factors help mitigate potential price fluctuations and prevent events such as liquidation cascades.
Collateral factors are crucial in determining borrowing limits and managing risk in lending protocols, providing users with flexibility and security in their borrowing activities.