Externalized Risk Management

Sentiment v1 applied a team controlled risk management system, whereby the internal team would manage risk parameters such as LTVs and collateral asset support, which would persist unilaterally across the protocol. In Sentiment v2 it has been decided to make the protocol permissionless which implicitly externalizes risk management. While this implementation is more scalable it also has inherent market place efficiency benefits.

Dynamic Risk Management

Given that any user can create a Base Pool or a Super Pool the ability to manage risk is exposed to end users. While the expectation is that only sophisticated risk managers will use these tools on behalf of most passive lenders these are readily available to any user in Sentiment.

Users now have the ability to design markets around desired preferences. Base Pools enable any user to design a market and configure; collateral assets; LTVs; Oracles and interest rate models. The creator of a base pool also has the ability to modify these parameters to be aligned with acceptable risk as price and market dynamics rapidly change. There are limitations to what a Base Pool Manager can modify as to not create incentives for Managers to adversely affect lenders or borrowers.

Super Pools provide an additional layer of risk management, while decrease liquidity fragmentation. The manager of a Super Pool, named allocator, has the ability to create allowances and caps for Base Pools. Super Pools were designed for passive users to get exposure to markets in a risk adjusted way. Since they reduce fragmentation lenders benefit from liquidity for withdrawals while earning risk-adjusted yields.