Oracle Independence

Overview of how MYSO v1 makes use of the maxLoanPerColl parameter

One key pool parameter that allows for the MYSO v1 to achieve oracle independence is maxLoanPerColl, which essentially sets the maximum loan currency amount a user can borrow per one unit of pledged collateral.

For example, let’s say a user creates a pool that supports pledging wETH as collateral to borrow USDC (wETH/USDC) and sets the maxLoanPerColl parameter equal to 1000. This means that for any user who wants to borrow from this pool, for every 1 unit of wETH they put as collateral, they can at most borrow 1000 USDC. Conversely, from the LP side, a maximum of 1000 USDC will thus be able to be lent out for every 1 unit of wETH posted as collateral.

The more collateral a user pledges, the higher the loan amount. However, the loan amount rises with the pledged collateral amount in a non-linear way — the more a user pledges, the less they can borrow on a per-pledged-collateral-unit basis. This translates into a lower LTV for larger loans, which preserves pool liquidity and naturally de-risks larger loans for lenders.

MYSO loan amount converging towards a linear loan amount based on pool utilization

The non-linear relationship between the pledged collateral amount and loan amount is most pronounced when there’s only little liquidity left in the pool relative to the borrowed amount. On the other side, if the loan amount is only small compared to available pool liquidity, then the relationship between the pledged collateral and loan amount converges to a simple linear relationship.

In this way, each MYSO v1 pool has its own creator-defined pricing mechanism which makes use of this “maximum loanable amount per unit of pledged collateral” parameter.