Each vault type (e.g., MATIC vault) has its own unique set of risk parameters that enforce usage and help maintain a healthy system. The parameters are determined based on the risk profile of the collateral type, and are directly controlled by Qi holders through voting. The higher the risk of the collateral type (based on its volatility and liquidity), the stricter the risk parameters may be.
- Debt Ceiling: The debt ceiling is the maximum amount that can be borrowed against a particular collateral type. When a vault has reached its debt ceiling, it is impossible to create any more debt of that type until some of the existing debt is paid back or the debt ceiling is raised.
- Repayment Fee: The repayment fee is the fee paid to the Treasury when a vault owner closes out their debt position to access their vault’s collateral.
- Liquidation Ratio: This ratio refers to the minimum collateral to debt ratio that there can be in a vault, before it is opened for liquidation penalties. A low liquidation ratio means QiDao governance expects low price volatility of the collateral; a high liquidation ratio means high volatility is expected.
- Liquidation Penalty: This is the sale of a vault if a vault becomes undercollateralized. This ensures that all debts and fees will be paid back to the system even if the original debt holder is unable to maintain their vault debt.