Pool Types

Keom Protocols makes available two types of lending pools, to better take into account the risk profile of assets being deposited therein.

Cross-Collateral Lending Pool

A Cross-Collateral Lending Pool allows for various assets to be supplied into a single pool. This consolidation maintains a unified liquidity market and allows for streamlined risk management as well as monitoring.

Instead of handling multiple fragmented pools distinctly, a uniform risk management strategy can be set up for the Cross-Collateral Lending Pool. It is also easier to monitor and analyze the performance and health of a Cross-Collateral Lending Pool as opposed to multiple Isolated Lending Pools.

In the Cross-Collateral Pool, there is a unified mechanism for pricing assets, calculating interest rates, and assessing collateral value. This uniformity reduces the complexity that arises from dealing with multiple pricing models in Isolated Lending Pools but limits possibilities when it comes to adjustments required by the nature of specific assets.

It is important to note a key vulnerability stemming from the very nature of Cross-Collateral Lending Pools: the interdependence of the various assets being treated uniformly despite a potentially wide diversity of characteristics and ensuing risk profiles. If one asset within the cross-collateral pool is compromised, it can negatively impact the entire pool.

To mitigate the above risk, only well-established, high-quality assets ('blue-chip' tokens) supported by a strong and reliable price feed system (robust oracle) are included in the Keom Cross-Collateral Lending Pool. Please read more about the listing process here.

Isolated Lending Pools

An Isolated Lending Pool involves a specific pair of assets (e.g., ETH-STONE, USDC-wUSDM). Each Isolated Lending Pool operates independently from the others. This means that events affecting one pool do not affect the others.

While Isolated Lending Pools share many technical features with Cross-Collateral Pools, their isolated nature leads to fragmented liquidity while allowing for higher collateral ratios (there is always a trade-off).

A common strategy in these pools involves depositing a yield-bearing asset (like wUSDM), borrowing a stablecoin (e.g., USDC), exchanging it back to the original yield-bearing asset, and then re-depositing it. This cycle enhances the yield potential while maintaining a price-neutral position, assuming the peg between wUSDM and USDC remains stable.

Isolated Lending Pools can be used for non-yield-bearing assets alike.

Isolated Lending Pools offer borrowers clear visibility on interest rates. For instance, using STONE as collateral, borrowers are incentivized to avoid excessively increasing the borrowing costs of ETH, ensuring alignment with their earnings from holding STONE or its derivatives. This setup promotes responsible borrowing within the ecosystem.

Let’s consider the example of a user supplying STONE as collateral to borrow ETH. The interest rate paid for borrowing ETH depends on market conditions, including the demand for ETH loans and the supply of ETH in the lending pool. In an Isolated Lending Pool, borrowers are disincentivized from excessively borrowing ETH to the point where the interest rate becomes unsustainably high. In other words, if a user supplied STONE, he wouldn’t want to borrow ETH at an interest rate that exceeds what the yield earned from STONE. This creates a self-regulating system where borrowers are incentivized to borrow responsibly.

Lastly, while Isolated Lending Pools offer the advantage of higher collateral factors, they also require careful consideration of the security and stability of each asset involved. Users can choose not to participate in a pool if they perceive it as too risky and instead opt for the more diversified risk of Cross-Collateral Pools. Decisions regarding the integration of assets listed on Isolated Lending Pools into the Keom Cross-Collateral Pool are subject to a community vote.

Last updated