Collateralization Ratio Bounds

Collateralization ratio bounds are the defined mathematical limits that determine the minimum and maximum amount of assets required to back a derivative position. These bounds are critical for maintaining the solvency of decentralized lending and synthetic asset platforms.

Formal verification is used to prove that the protocol's code enforces these bounds under all circumstances, preventing positions from becoming under-collateralized. The tools verify that liquidation triggers are mathematically correct and that the collateral valuation logic cannot be bypassed or manipulated.

By establishing these bounds, the protocol protects the entire ecosystem from cascading liquidations and insolvency risks. It ensures that the underlying economic design is reflected accurately in the smart contract code, providing stability even during extreme market volatility.