4.4 Risk mitigation

ChopSui takes risk mitigation seriously and incorporates several measures to enhance user safety and protect against potential risks within its ecosystem. These risk mitigation strategies aim to provide users with a secure and reliable platform to engage in various DeFi activities.

One of the key risk mitigation mechanisms implemented by ChopSui is conservative borrowing limits. When users participate in leveraged yield farming or other borrowing activities, the platform sets prudent limits to ensure that users do not take on excessive leverage. These limits are designed to prevent users from overexposing themselves to potential losses beyond their risk tolerance.

Additionally, ChopSui employs automated margin calls to manage risk in leveraged positions. In the event that the value of collateral falls below a certain threshold due to market volatility, the platform automatically triggers a margin call. This mechanism helps protect users by prompting them to take action to maintain sufficient collateral or reduce their leverage, reducing the risk of liquidation.

Collateralization ratios play a crucial role in risk mitigation on ChopSui. The platform sets appropriate collateralization ratios to ensure that users provide sufficient assets as collateral when engaging in leveraged activities. These ratios are determined based on factors such as asset volatility and borrowing costs, aiming to maintain a healthy balance between risk and potential returns.