Supply Cap

Supply caps per market are determined in close relation to the LLTV, which defines the point of liquidation and implicitly the liquidation penalty (via LIF) available to incentivize liquidators. This relationship is critical, as the liquidation threshold and associated incentive must be sufficient to ensure positions can be unwound under all market conditions.

Liquidity Analysis

Our cap-setting process is grounded in detailed liquidity analysis. We size allocations such that liquidators remain profitable even under adverse conditions, including scenarios with elevated slippage, reduced order book depth, and fragmented liquidity. This ensures that liquidation pathways remain viable not only in normal environments but also during periods of market stress.

Importantly, we model cascading liquidation scenarios across multiple venues, where simultaneous deleveraging events can amplify price impact. These conditions often lead to widened spreads on centralized exchanges and significantly higher slippage on decentralized exchanges. By incorporating these dynamics, we ensure that our assumptions are not based on isolated market conditions but reflect system-wide stress.

Finally, we benchmark our parameters against historical market behavior across asset classes and apply additional safety buffers on top of conservative estimates. This layered approach ensures that caps remain robust even in tail-risk scenarios, prioritizing reliable liquidation over aggressive capital deployment.