Isolated Pools

Introduction to Isolated Pools

At Tectonic, we recognize the importance of providing a diverse range of tokens for borrowing and lending, and we're passionate about expanding our token offerings to ensure we remain a leading lending protocol on Cronos. However, we're aware that the introduction of new tokens can pose certain challenges for the market.

Therefore we're taking a careful and measured approach when it comes to smaller cap tokens. While we believe these tokens have great potential, we understand that their lower liquidity and potential price volatility can cause concern.

Isolated lending pools will feature a carefully curated list of supported tokens and stricter money market parameters to ensure their stability. These segregated pools will be permissioned, meaning that new markets will need to be carefully vetted before being listed. This approach strikes a balance between expanding our token offerings and maintaining a stable market for all participants.

Why the need for isolated lending pools?

At Tectonic, we're committed to providing our users with flexible options for borrowing and lending, while also taking extra care to ensure the safety and stability of our protocol.

Our single cross-collateral pools allow users to deposit supported assets as collateral and borrow other supported assets from the same pool. While this setup offers convenience and efficiency, it also comes with a higher degree of risk. In fact, irregular price movements of a single asset can have a ripple effect, potentially putting all other assets in the pool at risk.

That's why we take extra precautions when it comes to adding assets to our cross-collateral pools. We prioritize assets with deeper liquidity and more reliable price oracles to help mitigate potential risks. However, this cautious approach can limit our ability to scale and offer new opportunities to our users.

That's where our isolated pools come in. These separate lending markets each have their own unique features and parameters, allowing us to better manage risk and offer support for a wider range of assets. By running as standalone environments with different parameters and supported assets, our isolated pools are effectively risk isolated and provide a safer, more stable option for our users.

Aspect	Single Cross-collateral Pool	Multiple Isolated Pools
Structure	All assets stored in single pool, users can deposit supported assets to earn interest or borrow.	Pools run in segregated environments, each with set of supported assets and parameters
Security	In case of irregular price movements or malicious acts, the entire TVL will be at risk.	Risks or price irregularities are contained in each isolated pools, affecting a smaller amount of asset
Customizability	Lack of customizability on money market parameters.	Each different pool contains different assets and lending parameters. Users can invest according to their risk appetite.
Asset Availability	Listings only include blue chip tokens with deep liquidity.	Isolated pools could hold more volatile tokens and expand offerings to users.

Isolated pools provide an added layer of security for users, ensuring that the value at risk is limited to the pool in question, and all other assets in other pools remain secure. This added security feature offers users peace of mind, even if one pool is subjected to an attack or price inaccuracies.

Furthermore, isolated pools offer a higher degree of flexibility for users, as each pool has different parameters, enabling users to invest in pools that align with their risk appetite and asset preference.

It is worth noting that while isolated pools offer increased choice to users and added security, they also come with some trade-offs. One such trade-off is that spreading assets across multiple pools can result in fragmented liquidity. However, this can be mitigated by carefully managing the liquidity of each pool to ensure that there is sufficient borrowing and lending activity. Furthermore, the ability to customize the parameters of each pool provides users with more control over their investment decisions, which can lead to a more tailored and effective strategy.

How does an isolated pool work?

Tectonic currently operates with only one pool, referred to as the Main Pool, as shown in the diagram above. However, the launch of isolated pools will soon add new subsets of assets.

For example:

For instance, Isolated Pool 01 comprises two tokens: SCT01, a newly created token with low liquidity, and USDT. Users will be able to supply SCT01 as collateral and borrow USDT, or they can supply USDT and borrow SCT01.

Since SCT01 has low liquidity, its price may be more susceptible to manipulation. If an attacker artificially inflates SCT01's price and borrows a large amount of USDT, the value at risk will be confined to Isolated Pool 01, and it will only affect the available USDT within that single pool.