Risk Segregation

Risk segregation is the architectural practice of isolating assets and positions to prevent the spread of financial failure across a system. In crypto protocols, this is achieved through sub-accounts, isolated pools, or smart contract compartmentalization.

By segregating risk, a protocol ensures that an exploit or a localized liquidation event in one area does not impact the stability of the entire ecosystem. This is a fundamental principle in building resilient decentralized finance infrastructure.

It allows for more complex financial products to exist without creating systemic contagion.