# Risk Parameters

Each market in Paddle has specific values related to their risk, which influences the process of how they are supplied and borrowed. Risk parameters will be routinely reviewed and set up accordingly with varying market condition or DAO governance.

## Detailed Risk Parameters Analysis <a href="#detailed-risk-parameters-analysis" id="detailed-risk-parameters-analysis"></a>

The risk parameters are used to provide referral criteria for the management of currency risks in Paddle loan market. Given the volatility of digital assets, margin would be reserved amid market downturn in each borrowing case. If the value of the collateral slips under a threshold, part of it could be forced into auction to repay the debt, while the rest position would remain collateralized.

## Isolated Margin <a href="#collaterals" id="collaterals"></a>

To minimize systemic risk, Paddle uses **isolated lending pools**—each pool is tied to a specific **NFT** collection and settlement asset. This ensures that lenders are only exposed to the specific projects they choose, rather than risks across the entire platform.

Unlike protocols like Aave or Compound, where your collateral can also be borrowed by others, Paddle keeps all collateral locked and unavailable for lending. This makes the asset/liability structure much clearer, more predictable, and easier to manage—for both borrowers and lenders.

## Collateral Factor <a href="#collateral-factor" id="collateral-factor"></a>

Collateral Factor can also be understood as Loan-to-Value (LTV). It determines the upper limit of amount that can be borrowed against a collateral. A 75% collateral factor means borrowers who have 100 USD position can borrow a 75 USD worth of corresponding currency. Collateral factor will go along with the market and evolve when the whole loan market matures.

## Reserve Factor <a href="#reserve-factor" id="reserve-factor"></a>

The reserve factor is a portion of interest paid by borrowers that is retained by the protocol. It supports long-term sustainability by funding governance incentives and serving as a risk buffer for lenders.

The reserve factor is based on asset volatility—more volatile assets have higher reserve rates to better manage risk. While it doesn’t directly impact user positions like collateral factors do, it plays a key role in maintaining overall protocol health.

Reserves collected on Berachain may be used to bribe validators for BGT emissions, helping to boost liquidity and incentivize lenders in Paddle’s NFT loan markets.

## Latest Risk Parameter Setup

<table><thead><tr><th width="267.39996337890625">Market</th><th width="281.2000732421875">Collateral Factor</th><th>Reserve Factor</th></tr></thead><tbody><tr><td>Bullas/WBERA</td><td>40%</td><td>12.5%</td></tr><tr><td>Steady Teddys/WBERA</td><td>50%</td><td>12.5%</td></tr><tr><td>Yeetard/YEET</td><td>40%</td><td>12.5%</td></tr></tbody></table>


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