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Borrow Cap

Breakdown of Borrow Cap parameter utility and methodology

Utility

The borrow cap limits the amount of short side exposure the protocol is willing to take for a given asset. Maintaining a borrow cap is especially useful for assets that are more prone to price manipulation (high concentration / low liquidity level).

Methodology

We’ll determine the borrow cap setting using the max trade size for a determined threshold for buy-side slippage.
For example, a threshold of 5% buy-side slippage could be used for every asset.