Collateral and Reserves

Reserve Funds

A portion of interest paid by UncleSam Finance borrowers accumulates in reserve funds. The percentage allocated to reserves is set by the reserve factor, which UncleSam governors can adjust.

If the reserve factor is 10%, for example, 10% of interest from borrowed assets goes to UncleSam's reserves. Reserves act as an buffer that can be governed by the protocol and community.

Asset Collateralization

UncleSam Finance assigns each asset a collateral factor ranging from 0-90%. This factor determines the proportional borrowing power a deposited asset provides.

Higher liquidity and volume assets tend to receive higher collateral factors. Lower liquidity alternative assets are assigned more conservative factors. A 0% factor means the asset cannot collateralize loans, but can still be borrowed.

In summary, the collateral factor sets the maximum borrowing capacity for a particular deposit amount. For example, if USDC has a 75% factor, depositing 1000 USDC allows a max borrow of 750 USDC worth of other assets.

Collateral factors are key to UncleSam Finance's risk management. They align borrower incentives and prevent dangerous levels of leverage across Base Chain lending markets.