The Risk Engine sits at the heart of the protocol and is responsible for maintaining solvency across two fronts:
- At the account layer where it ensures that every account is solvent
- At the protocol layer where it ensures that the protocol as whole is solvent with respect to the lenders.
Whenever a borrower tries to withdraw assets from their account or interact with an external contract, the risk engine validates the collateralization ratio of their account after the transaction is completed. This prevents malicious borrowers from extracting borrowed funds outside the system. The same checks also ensure that the account is sufficiently collateralised at the end of every operation the borrower undertakes.
Sentiment liquidations are open-market in nature and can be performed by any external actor. In Sentiment, liquidators are called “Maintainers”, and they are monetarily incentivised to liquidate at-risk accounts and maintain protocol solvency. The liquidation process involves the Maintainer repaying debt owed by an at-risk account and subsequently receiving all assets in the account at a discount.
The protocol has granular control over parameters surrounding liquidation incentives. Risk measures that can be tweaked to ensure that the protocol stays resiliant to violent market movements.