Market Stress Calibration

Market stress calibration is the process of testing and adjusting protocol risk parameters ⎊ such as liquidation thresholds, margin requirements, and circuit breakers ⎊ to ensure they perform effectively under extreme market conditions. This involves running simulations and stress tests to see how the system would behave during a market crash or a period of high volatility.

By calibrating these parameters, developers can ensure that the protocol is neither too restrictive nor too permissive. This ongoing process is vital for adapting to the evolving nature of crypto markets and ensuring that the protocol remains robust against unexpected events.