Precautionary Measures

Stella Lend’s employs 4 different caps as a part of risk frameworks.

  1. Strategy Cap

This cap limits the number of tokens each strategy can borrow from lending pools.

For example, an ETH/DAI strategy on Uniswap V3 fee 0.3% has caps of how much it can borrow ETH from ETH lending pool and DAI from the DAI lending pool.

  1. Pool Type Cap

This cap limits the number of tokens borrowed by a pool type. In the context of Stella Strategy, a pool type represents a method by which Stella integrates with smart contracts of other protocols. A pool type can encompass multiple strategies, and each externally integrated protocol (such as Uniswap v3, GMX, Camelot, etc.) can have several pool types.

For example, Stella may support several leveraged strategies that build on top of Uniswap V3, several on top of GMX, and several on top of Camelot. If all integrated Uniswap v3 strategies fall under the same Pool Type, there will be one Pool Type Cap limiting the number of tokens all Uniswap v3 leveraged strategies can borrow in aggregate.

  1. USD Cap

This cap restricts the overall value, denominated in USD, that each strategy is allowed to borrow.

For instance, consider an ETH/DAI strategy in Uniswap V3 with a 0.3% fee. This strategy has a cap on the combined total of borrowed ETH and DAI, measured in USD.

  1. Token Exposure Cap

This cap restricts the total amount and the percentage of the lending pool that can be borrowed by all strategies with exposure to a specific token. Its purpose is to mitigate potential losses in the event that the value of the exposed token drops to zero.

For instance, consider strategies involving the PEPE/USDC pair from Protocol A and Protocol B. Stella will enforce caps on:

  1. The total amount of USDC that both PEPE-related strategies can borrow from the USDC lending pool.

  2. The percentage of the USDC lending pool that both PEPE-related strategies can borrow

It's important to note that Stella allows for flexibility by considering the maximum borrowed value between the token amount cap and the percentage cap.

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