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Stella uses the concept of LP as collateral to enable undercollateralized loans. By assigning a collateral factor to each LP, the protocol can determine how much credit is gained from collateralizing an asset. An LP's collateral factors depend on the volatility, trustworthiness, and data backtesting of relevant assets.
The same collateral factor will be applied to the same LP at every fee tier.
Stella allows user to add extra collateral to help better a position's Debt Ratio. Extra collateral can be any token within an asset pair/LP. These newly added collaterals will not be taken into account when calculating the position's yield.