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Isolated Asset Tiers

Asset Classification with isolated asset tiers enable Prestare users to lend and borrow almost every asset.
Permissionless listing is considerably riskier on decentralized lending protocols than on other DeFi protocols including decentralized exchanges, because of the possibility for risk to quickly spread from one pool to another. For instance, the pools of various asset types may be left with bad debts if the value of a collateral asset drops rapidly and future liquidations fail to fully repay borrowers' debts.
DeFi lending protocol often suffered a massive exploit with bad debt because of the manipulation of the small-cap token price, including Mango Market and Venus.
To counter these challenges, we use risk-based asset tiers to protect the protocol and its users:

Permissionless Listing

Any token asset can be listed on Prestare. Users and projects can propose markets for token holders to vote on. Assets are divided into four tiers, which are Tier A, Tier B, Tier C and Tier D on Prestare respectively, according to their market capitalization, smart contract risk, volatility, volume and decentralization extent.
All tier assets are available for ordinary lending and borrowing and used as collaterals to borrow other assets, except Tier D.
Tier D assets are only available for ordinary lending and borrowing, but they cannot be used as collateral to borrow other assets. What this means is that the Tier D assets depositors can only earn interest by putting assets in the pool and lending it out to the borrowers who need Tier D assets. This initiative is to reduce the risk of the overall protocol though there are risk-isolated tiers, as almost all assets on the chain can be listed on Prestare at the full launch. It is not suitable for users to put tokens which have only extremely low market cap and circulation as collaterals, and lend out the assets from our depositors.
As a trade-off, there are different collateral ratios among different tier assets. The collateral ratio is relatively higher for users to borrow a higher-tier asset against a lower-tier asset. Moreover, users need to pay an interest premium to compensate the liquidity provider. For example, a user can deposit the lower-tier assets including UNI and CRV, and use them to borrow the highest-tier assets ETH and USDC with a higher interest rate and higher collateral ratio, compared with borrowing BTC against USDC.
The reason is that a malevolent user can borrow an excessive number of tokens from an illiquid collateral asset by inducing a price spike, which gives them no reason to pay them back. In contrast, it becomes unprofitable for liquidators to liquidate positions on a collateral asset that is experiencing high slippage and a price collapse, which results in bad debts. Therefore, Prestare has to introduce a higher collateral ratio for lower-tier assets.
Borrowers can have much more choices of assets on Prestare, by paying higher interests and having more collaterals.

Isolated Risk

The markets on Prestare are separated into 4 Tiers, meaning lenders can choose pools with different tiers and risks to deposit their funds. Meanwhile, borrowers are borrowing the same asset from different pools with different collaterals.
For example, the USDC pools are separated into the USDC-A pool, USDC-B pool, and USDC-C pool. If Alice is putting Tier A assets like ETH as collateral to borrow USDC from Prestare, USDC in USDC-A pool will be lent to Alice. At the same time, if Bob is putting Tier C assets like YFI as collateral to borrow USDC from Prestare, USDC in USDC-C pool will be lent to Bob.
So if YFI experiences an exploit, USDC lenders in USDC-A or USDC-B will not be affected since the risk is isolated to the USDC-C market only.
So as a liquidity provider, you can choose your borrowers by your risk appetite. You can get a higher interest as compensation if the pool corresponding with your counterparty’s collateral is riskier.
Liquidity providers can choose which pool to supply their assets with while having the possibility of enjoying higher interest.

Governance

Holders of governance tokens can vote to use governance procedures to remove assets from the lower tier and elevate them to the upper tier. Prestare's capital efficiency is boosted by moving assets up the tiers since it gives lenders and borrowers more freedom to spend money, but it also puts protocol users at risk. Therefore, balancing these issues is in the best interests of token holders.