Risks of mortgage business are basically divided into past-due repayment and depreciation of collateral. For the subject matter of crypto currency with high volatility, risk-control is particularly important.
1.Past-due payment: if borrowers default on payment, their collateral would be disposed to cover risk exposure
2.Depreciation of collateral: if the value of collateral depreciates, the risk would be controlled by mortgage rate maintaining and mandatory liquidation.
The essence of finance is to operate risks. For these risks above, ZOS provides a set of risk-control mechanism automatically executed by smart contract, lowering risks while earning incomes. To deal with the single borrowing risk and market systemic risk, we also offer two risk-control methods.
Risk Management of Collateral
We adopted a margin call risk-control system.
mortgage multiple = collateral value / loan amount.
When the feed price changes, the value of collateral fluctuates. To balance the risks and protect investors’ interests, we also designed a liquidation threshold and a warning threshold to make sure the mortgage is paid in full.
Systemic risk-control mechanism
The systemic risks breaking out in the market would lead to massive defaults, which would further trigger a breach in lending contracts. To avoid this, ZOS introduced a triple systemic risk-control mechanism.