# Risk Management

Avalon’s risk management framework is designed to ensure safe borrowing and lending for all users. Below are the key risk parameters:

* **LTV** (Loan-to-Value): The ratio of the borrowed stablecoin value to the collateral’s value. It determines how much a user can borrow relative to their deposited collateral.
* **Max LTV** (Maximum Loan-to-Value): The maximum allowable LTV ratio when borrowing USDT. It sets the upper limit on how much stablecoin can be borrowed.
* Liquid**ation Threshold**: The LTV ratio at which the collateral becomes eligible for liquidation. If a user’s LTV exceeds this threshold, a portion of the collateral will be liquidated to reduce the LTV.
* **Recovery LTV**: The target LTV level that the liquidation process aims to achieve, ensuring that the borrower is brought back to a safer borrowing ratio.

These parameters collectively manage the risk associated with borrowing against collateral in the CeDeFi lending system, ensuring that users can borrow responsibly while protecting the platform against potential losses from fluctuating collateral values.

#### The risk parameters for supported collaterals:

| Assets | Max LTV | Liquidation Threshold | Recovery LTV |
| ------ | ------- | --------------------- | ------------ |
| FBTC   | 60%     | 90%                   | 80%          |

***

## **Liquidation Process**

In case of a liquidation event, the following steps will take place:

1. **Account Restrictions**: Users will be temporarily unable to withdraw collateral until the liquidation process is completed.
2. **Collateral Liquidation**: Collateral is sold on centralized exchanges, minimizing market impact through Avalon’s high-frequency trading algorithm.
3. **Account Updates**: After liquidation, user accounts will be updated to reflect the changes in the collateral and loan amounts.

This process ensures that users can borrow responsibly, while Avalon protects the platform from excessive risk. In the event of a high-risk situation where the LTV threshold is exceeded, the platform can efficiently mitigate potential losses while maintaining fairness and transparency for users involved in the borrowing and lending activities.

<br>

## **Liquidation Algorithm**

Avalon’s liquidation algorithm is designed to execute liquidations efficiently and fairly:

#### 1. High-Frequency Data Module:

Continuously collects order book updates from centralized exchanges to ensure accurate market data for liquidations.

#### 2. Prediction System:

Determines the optimal timing for liquidation, adjusting aggressiveness based on market conditions to minimize slippage.

#### 3. Order Book Quoting Logic:

Strategic placement of limit orders across multiple levels of the order book to mitigate price impact during liquidation.

#### 4. Risk Monitoring System:

Monitors the entire liquidation process to ensure compliance with pre-established risk thresholds.

By combining these advanced techniques, Avalon’s liquidation process ensures maximum efficiency while protecting user assets and minimizing market disruption.

## **Custody Solutions**

Avalon collaborates with industry-leading custody solution providers, such as Cobo, Fireblock, and Coinbase Prime, to safeguard protocol assets. All custody addresses are fully transparent and can be reviewed by users for peace of mind.


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