SOLUTION 33: AVOIDING "TOXIC ASSET" CONTAGION WITH $DOLO
THE SYSTEMIC RISK OF A SINGLE POOL MODEL
One of the greatest fears in DeFi is contagion, where the failure of one asset can cascade and take down an entire protocol. In traditional lending protocols that use a single, cross collateralized pool, a "toxic asset" can be used to drain all the other healthy assets from the pool. The platform governed by the $DOLO community was specifically architected to solve this problem.
A PRACTICAL EXAMPLE OF ISOLATED RISK
Let's consider a hypothetical "toxic asset" event. Imagine a small, experimental asset called "NewCoin" is listed on two different platforms. On "Protocol A," which uses a shared pool, an attacker exploits an oracle for NewCoin and is able to borrow $10 million worth of ETH and USDC against worthless NewCoin collateral, draining the protocol and causing losses for every user. On the @Dolomite platform, NewCoin exists in its own isolated pool. When the attacker performs the same exploit, they are only able to borrow the assets that are available in that specific pool.
The main pools for ETH and USDC remain 100 percent unaffected. This architectural superiority, a core feature of the ecosystem built around the $DOLO digital asset, is what allows for the safe support of a diverse range of assets. The asset is your key to a safer DeFi.
