Asset Isolation

When an asset with low liquidity or high volatility is listed on the platform, it poses a threat, as sudden drops in price or a significant increase in trading volume of the asset can impact the health of collateral to liability relationships, resulting in increased liquidations, and can have domino effects across multiple liquidity pools - negatively affecting the entire platform.

For instance, if a volatile asset drops rapidly in price, a borrower could no longer have a healthy collateral/borrow ratio, and could then be subject to liquidation.

Asset Isolation is a feature to combat the potential threat posed by volatile asset pools. Each asset contains a Collateral Type property that determines how it can be used as collateral. This is how it works:

Collateral Type: Open

An asset with the Open collateral type value can be used as collateral, and can be used simultaneously with other collateral.

Collateral Type: Isolated

If an asset collateral property is isolated, it can only be used as collateral in isolation - no other form of collateral can be provided from that Kinza Finance account.

This rule works in reverse, if a Kinza Finance user already provides collateral with a non-isolated collateral asset, they will not be able to add further collateral using an asset with the isolated property. A user who provides collateral with an isolated property can still provide liquidity, but cannot use it as collateral for further borrowing activities. To switch collateral in this scenario, the user needs to first pay back his debt, turn off the original asset's usage as collateral, then turn on the new asset's usage as collateral.

If an isolated asset is used as collateral, then you can only borrow the following assets: USDT, USDC.

There's also a debt limit if you use isolated asset as collateral.

Example: Linda wants to deposit an asset A - It is an isolated asset. Linda can use A as collateral, as they have no other collateral position. Linda can now choose from assets available to borrow, given she is using an isolated asset as collateral.

Collateral Type: Closed

An asset with the Closed collateral type value can be deposited on the platform to earn interest, but cannot be used as collateral.