Risk Management

The capital in the bonding curve acts as a safety pool to provide insurance for the fDAO token market from the impact of smart contracts and economic risks. In the situation of a loan default or a hack, the $FOR in the bonding curve is sold to complete the depositor, thereby reducing the price of $fDAO. Specifically, the amount of $FOR that can be sold in fDAO is limited to the triangular area shown in the figure.

The maximum amount for risk management of fDAO is:

1/2*A*X2

When the slope Adown tends to 0, we no longer withdraw $FOR from fDAO, but start to use the system risk reserve, which contains 100 million $FOR and funds donated by the community.

Assume that A is 0.00005 and B is 50. We simulate and calculate the relationship between the issuance of $fDAO and the reserve asset $FOR, as well as the amount and proportion of the asset $FOR for risk management. As shown in the table below, the more system reserve assets, the higher the number and proportion of assets for risk management, and the safer the lending pool.

Risk Management Simulation Data