Risk, Liquidation, and Capital Safety

How GigaETH manages downside without destroying yield, triggering cascades, or breaking payments.

Risk management in GigaETH is designed around a constraint that most DeFi protocols ignore: payments cannot tolerate violent liquidation mechanics. In traditional lending markets, liquidation is treated as an acceptable failure mode. Positions are force-closed, collateral is dumped, and the system survives at the expense of the user. This works for leveraged speculation. It does not work for infrastructure that is meant to support spending.

GigaETH therefore treats liquidation as a last resort, not a primary safety mechanism.

The protocol’s first line of defense is conservative, risk-weighted collateralization. Each linked LST is assigned a dynamic risk weight derived from validator decentralization, slashing history, protocol maturity, and bridge exposure where applicable. Borrowing capacity is calculated against the weakest component of a user’s aggregate position, not the strongest. This prevents users from gaming the system by stacking high-risk derivatives on top of safer assets.

The second layer is continuous solvency monitoring. Rather than relying on discrete health factor thresholds, GigaETH evaluates positions on a rolling basis using real-time oracle inputs for ETH price, LST exchange rates, and protocol-specific risk parameters. This allows the system to detect deterioration early, before a position becomes unrecoverable.

When risk thresholds are approached, GigaETH prioritizes soft interventions. Borrowing capacity may be reduced, payment limits may be temporarily constrained, or users may be prompted to add collateral or repay a portion of outstanding debt. These actions preserve user agency and avoid sudden disruption of payment flows.

Only when these measures fail does liquidation occur. Even then, liquidation is designed to be non-destructive. Instead of immediately selling underlying LSTs on the open market, the protocol routes positions through controlled unwind paths. These may include internal netting against bidder liquidity, delayed settlement windows, or partial liquidation that preserves remaining yield exposure.

This matters because forced selling of LSTs does more than harm the individual user. It feeds volatility back into the staking ecosystem, increases slashing correlation, and amplifies systemic risk. GigaETH’s liquidation logic is explicitly designed to avoid becoming a source of stress during market drawdowns.

From a bidder’s perspective, capital safety is equally important. Bidders require assurance that their liquidity will not be trapped behind illiquid collateral or exposed to sudden shortfalls. By maintaining conservative LTVs, early intervention mechanisms, and predictable unwind paths, GigaETH makes borrowing against LSTs legible to institutions that would otherwise avoid DeFi exposure.

The result is a system where risk is absorbed gradually rather than explosively. Yield continues to accrue under normal conditions. Payments continue to function during volatility. Liquidations, when they occur, are orderly and bounded.

This is the difference between a trading protocol and financial infrastructure. GigaETH is built for the latter.