🧱Isolation Mode

Isolation Mode is a critical risk management mechanism implemented by Sonarix to safely integrate high-risk or newly listed assets into the platform while protecting the overall ecosystem.

When an asset is designated as isolated, it is subject to a strict borrowing cap (debt ceiling) that limits the maximum total borrowable amount denominated in USD. This cap prevents excessive risk exposure from volatile or less liquid assets.

In Isolation Mode, users who supply isolated assets as collateral can only borrow from a predefined set of low-risk, stable assets such as stablecoins. This containment strategy ensures that the risk associated with isolated assets does not propagate through the broader platform.

Borrowers cannot leverage other non-isolated collateral to increase borrowing capacity against isolated assets, effectively segregating risk and maintaining platform stability.

To maintain control over potential liabilities, users must fully repay any outstanding debt tied to isolated collateral before disabling that collateral or exiting Isolation Mode. This ensures that all risks remain contained until liabilities are cleared.

Benefits of Isolation Mode on Sonarix include:

• Enhanced Platform Safety: By limiting total borrowable amounts and restricting borrowing to stable assets, Isolation Mode reduces the risk of systemic shocks.

• Risk Segregation: Isolated assets and their related liabilities remain compartmentalized, preventing contagion to other assets or users.

• Capital Efficiency with Safety: While allowing users to access new or experimental assets, Isolation Mode safeguards liquidity providers and the protocol.

• Clear User Boundaries: Borrowers understand and manage isolated asset positions with clear collateral and borrowing constraints.

Overall, Isolation Mode allows Sonarix to innovate responsibly by onboarding new assets without compromising the platform’s liquidity, security, or user trust.