Collateral Risk Management Mandate

Collateral risk is perhaps the most important risk to study and treat for any CDP-based stablecoin system. The StableUnit DAO mandated 3 desired outcomes for Collateral Risk Management:

1. Minimize risk and the probability of occurrence of bad debt accrual events which may be collaterals - ensure system solvency.

2. Maximize capital efficiency.

3. Maintain the attractiveness of the StableUnit DAO products

Collateral Risk Management Objectives

To achieve the target outcomes of the DAO mandate, Collateral Risk Management leverages:

1. Manual analysis of each collateral and its unique qualities

2. Data-driven analysis and calculation of optimal collateral parameters

3. Risk pricing for each collateral, using

   • Internal pricing of collateral risk

   • External, capital-backed market pricing of collateral risk (solvency insurance, options markets, and prediction markets)

4. Stress testing individual collaterals

5. Simulation of a portfolio of collaterals in tail risk scenarios.

6. Collateral Risk Mitigation. Design, maintain, and propose deployment/activation/deactivation of risk mitigation strategies for each active collateral and entire portfolio.

7. Collateral Risk Transfer. Design, maintain, and propose deployment/activation/deactivation of risk transfer strategies.