Cap Mechanism

Evoq integrates a supply and borrow cap mechanism to enhance stability, minimize risk, and maintain flexibility while interfacing with Venus. This feature ensures controlled market exposure, aligning with the safety standards of the base protocols while offering adaptability to evolving market dynamics.

Overview

The supply and borrow cap limits the total liquidity utilization within the Evoq protocol by imposing a maximum threshold on the cumulative amounts of supply and borrow activities. These thresholds ensure stability by avoiding over-leveraging or excessive utilization, which could jeopardize the protocol’s liquidity and user safety.

Scope

• The amount counted toward the supply/borrow cap for each market includes both pool and P2P amounts.

Enforcement

• Supply and borrow transactions exceeding the cap are rejected to comply with the threshold.

• This ensures Evoq remains within predefined safety limits, even during volatile market conditions.

Modes of Operation: Dynamic Cap Control

Evoq’s cap mechanism supports two operational modes, allowing it to adapt to varying risk scenarios and market needs:

Mode 0: Fixed Cap Values

• Evoq admin/owner define fixed supply and borrow cap values.

• Use Case: Ideal for environments requiring stricter, pre-defined risk controls or when market conditions are predictable.

Mode 1: Dynamic Caps Based on Base Protocol

• Caps dynamically mirror those set by the base lending protocol (i.e. Venus).

• This approach ensures Evoq inherits the base protocol’s rigorous safety and risk parameters, making it robust to changes in the underlying market environment.

• Default Setting: Evoq operates in Mode 1 by default, ensuring alignment with the base protocol’s established safety framework.

Key Benefits

1. Aligned Risk Management:

Caps are inherently compatible with the base protocol’s safety parameters, ensuring consistent risk tolerance and stability.

2. Enhanced Liquidity Control:

By factoring both pool and P2P amounts into the cap, Evoq prevents over-exposure, preserving market balance.

3. Market Flexibility:

The dual-mode operation allows Evoq to adapt to different market scenarios:

• Fixed caps for controlled environments.

• Dynamic caps for alignment with base protocols and evolving market dynamics.

Impact on Protocol Efficiency and Safety

The cap mechanism serves as a critical component of Evoq’s optimization strategy. By limiting the total supply and borrow amounts, it prevents market disruptions caused by liquidity imbalances or over-leveraging. At the same time, it ensures that Evoq remains an efficient, stable, and secure alternative for decentralized money markets.

• Capital Efficiency: Direct matching in P2P reduces friction, enhancing yield while keeping operations within safe boundaries.

• Risk Mitigation: By adhering to or extending the base protocol’s risk measures, Evoq minimizes systemic vulnerabilities.

• User Protection: Safeguards ensure predictable behavior, even under extreme market conditions, giving users confidence in Evoq’s reliability.

This combination of safety, adaptability, and efficiency underscores Evoq’s position as an advanced money market optimizer.