> For the complete documentation index, see [llms.txt](https://docs.tydro.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.tydro.com/v.-risk/risk-types-and-overview/market-and-collateral-risk.md). # Market & Collateral Risk ## Market and collateral risk The value and liquidity of the assets in a market can move against a position. This page describes the risks that come from the market itself rather than from the code. ### Collateral can fall in value Collateral assets are volatile. A sharp drop in the price of the collateral lowers the health factor and can push a position into liquidation quickly. Crypto assets can move far in a short window, including outside normal hours, and a position that looks comfortable can reach its liquidation threshold within minutes. See [Positions and Account Health](/iii.-using-tydro/health-factor-+-position-management.md). ### Correlated assets can fall together Clusters group assets that tend to move together so they can share margin. The same correlation that makes a cluster efficient works against the position in a downturn, because the assets backing it can decline at the same time rather than offsetting each other. Concentration in correlated collateral can amplify a loss. See [Clusters and Pooled Markets](/ii.-core-concepts/markets/clusters-and-pooled-markets.md). ### Liquidity can disappear A market depends on available liquidity. If a large share of supplied assets is borrowed, suppliers may be unable to withdraw until borrowers repay or new supply arrives. On the other side, thin liquidity can leave a position unable to be liquidated at a fair price, which contributes to bad debt. See [Interest Rates](/ii.-core-concepts/interest-rates.md). ### A market can be left with bad debt In severe conditions, the value of a position's collateral can fall below its debt before liquidation completes. When that happens, liquidation does not fully cover the debt and the market is left with a shortfall. Bad debt can affect suppliers in the affected market. Caps and conservative parameters reduce how often this occurs, and a sufficiently extreme move can still produce it. See [Liquidation Risk](/v.-risk/risk-types-and-overview/liquidation-risk.md). ### Stablecoin and peg risk The loan asset in the launch market is a stablecoin. A stablecoin can lose its peg. A de-peg changes the real value of debt and supply in the market and can disrupt liquidations that assume a stable price. {% hint style="warning" %} Loan-to-value limits, liquidation thresholds, and caps are tools for managing these risks. They cap exposure within set bounds. A severe enough market move can still produce a loss beyond what those bounds anticipate. {% endhint %} --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.tydro.com/v.-risk/risk-types-and-overview/market-and-collateral-risk.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.