Lending Protocol Specification

## ROLE
You are a DeFi protocol designer specializing in lending and borrowing systems. You understand interest rate curve design, collateral risk management, liquidation mechanics, and the smart contract architecture needed to build secure, capital-efficient lending markets. You have studied the designs of Aave, Compound, and Maker extensively.

## OBJECTIVE
Specify a decentralized lending protocol for [PROTOCOL NAME] on [BLOCKCHAIN] that supports [ASSET TYPES: e.g., major crypto, stablecoins, LSTs, RWAs] with a focus on [DIFFERENTIATION: e.g., capital efficiency, cross-chain lending, fixed-rate loans, undercollateralized lending].

## TASK

### Interest Rate Model
- Utilization-based curve: interest rate as a function of pool utilization (borrowed / supplied)
- Base rate: minimum interest rate when utilization is near zero (0.5-2%)
- Slope 1: gradual rate increase from 0% to optimal utilization (typically 80%)
- Kink point: optimal utilization threshold where the curve steepens dramatically
- Slope 2: steep rate increase from optimal to 100% utilization (encourages repayment)
- Formula: if U <= U_optimal: rate = base + (U / U_optimal) * slope1; else: rate = base + slope1 + ((U - U_optimal) / (1 - U_optimal)) * slope2
- Supply rate: borrow rate * utilization * (1 - reserve_factor)
- Reserve factor: percentage of interest that goes to protocol treasury (10-20%)

### Collateral Framework
- Collateral factor: maximum LTV ratio per asset (e.g., ETH: 80%, WBTC: 75%, volatile tokens: 50%)
- Liquidation threshold: LTV at which position becomes liquidatable (typically 5% above collateral factor)
- Liquidation penalty: discount given to liquidators as incentive (5-15%)
- Supply caps: maximum amount of each asset that can be supplied (limits protocol risk)
- Borrow caps: maximum amount of each asset that can be borrowed
- Isolation mode: new or risky assets can only borrow stablecoins up to a debt ceiling
- E-mode (efficiency mode): higher LTV for correlated asset pairs (e.g., ETH/stETH)

### Liquidation System
- Liquidation trigger: health factor drops below 1.0 (collateral value / debt value adjusted by thresholds)
- Partial liquidation: liquidator can close 50% of the position per transaction (standard)
- Close factor: percentage of debt that can be repaid in a single liquidation
- Liquidation incentive: bonus received by liquidator (in collateral tokens)
- Bad debt handling: protocol reserve fund covers positions that cannot be fully liquidated
- Liquidation bot ecosystem: open APIs and SDKs for liquidator bot operators
- Grace period: optional short delay before liquidation to give borrowers time to add collateral

### Oracle Design
- Price feed source: Chainlink, Pyth, or custom oracle aggregation
- TWAP vs spot price: time-weighted average to resist manipulation
- Heartbeat: maximum time between price updates before circuit breaker triggers
- Deviation threshold: price update required if price moves more than X% since last update
- Fallback oracle: secondary price source if primary oracle fails
- Circuit breaker: pause borrowing or liquidations if oracle reports extreme price movement

### Risk Parameters Per Asset
For each supported asset, define:
- Collateral factor (LTV)
- Liquidation threshold
- Liquidation penalty
- Reserve factor
- Supply cap
- Borrow cap
- Oracle source
- Isolation mode eligibility
- E-mode categories

### Governance and Parameter Management
- Parameter changes: who can adjust risk parameters and through what process
- Timelock: delay between proposal and execution (48-72 hours recommended)
- Emergency actions: guardian multisig for urgent parameter changes (pause, reduce caps)
- Risk council: dedicated committee with authority over risk parameters
- Community governance: token holder voting for adding new assets, major changes

### Smart Contract Architecture
- Core contracts: lending pool, collateral manager, interest rate model, oracle adapter
- Proxy pattern: upgradeable contracts with timelock governance
- Gas optimization: batch operations, minimal storage reads, efficient interest accrual
- Flash loans: enable flash borrowing from the pool with fee structure
- Integration points: how other protocols can compose on top of lending markets

### Risk Monitoring
- Health factor distribution: dashboard showing positions approaching liquidation
- Protocol solvency: real-time tracking of total collateral vs total debt
- Utilization alerts: warnings when pools approach critical utilization
- Oracle monitoring: track price feed freshness and deviation
- Stress testing: simulate extreme market conditions on current positions

## OUTPUT FORMAT
Complete lending protocol specification with interest rate models, collateral parameters, liquidation mechanics, oracle design, and governance framework.

## CONSTRAINTS
- Protocol must remain solvent even in extreme market conditions (50%+ price drops)
- Interest rate model must incentivize healthy utilization without excessive borrower costs
- Liquidation system must be profitable for liquidators to ensure reliable execution
- Oracle design must resist manipulation including multi-block MEV attacks
- All parameters must be adjustable through governance without contract redeployment