Parameterization

Parameterization defines the core risk controls that govern how a market operates within a vault. These parameters determine how much capital can be deployed, how risk is bounded, and how the system behaves under both normal and stressed conditions. Proper parameterization ensures that markets remain efficient during stable periods while maintaining sufficient safeguards to prevent insolvency, failed liquidations, or excessive exposure.

At Markov, parameters are not set statically. They are derived from quantitative research, liquidity analysis, and stress testing, and are continuously evaluated as market conditions evolve. Each parameter is interconnected, meaning adjustments to one (e.g., LLTV) directly impact others (e.g., market caps), requiring a holistic approach to configuration.

• Oracle: Oracles are chosen based on reliability, transparency, and resistance to manipulation. Data must update frequently, with safeguards for stale or incorrect prices. Redundant feeds and cross-checks are used to ensure accuracy, especially for more complex assets.

• LLTV: LLTV is set to maintain a safe buffer from the bad debt threshold (1 / LIF). It is based on price volatility, potential drawdowns, and how quickly liquidations can occur. Higher LLTV increases risk and reduces how much capital can safely be allocated.

• Supply Cap: Market caps limit how much capital is allocated to a market. They are set based on liquidity depth and the ability to unwind positions with low slippage. Stress scenarios are considered to ensure liquidations remain profitable even in adverse conditions.