> For the complete documentation index, see [llms.txt](https://ezfi.gitbook.io/arcogitbook/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://ezfi.gitbook.io/arcogitbook/models/collateral-and-reserves.md). # Collateral and Reserves ARCO implements the collateral and reserve mechanics implemented by the Compound Protocol. #### Reserve factor Reserves are an accounting entry in each token contract that represents a portion of historical interest (set aside as cash) which can be withdrawn or transferred through the protocol's governance (once this is enabled). A small portion of borrower interest accrues into the protocol, determined by the reserve factor.\ \ The reserve factor is the percentage of interest paid to the ARCO protocol. If the reserve factor is 10, then that would imply a 10% rate of interest paid on the borrowed asset allocated to ARCO. #### Collateral factor Tokens have a collateral factor that can range from between 0-90%, and represents the proportionate increase in liquidity (borrow limit) that an account receives by minting the scToken. Large or liquid assets tend to have high collateral factors; whereas smaller or more illiquid assets will tend to have lower collateral factors. If an asset has a 0% collateral factor, it cannot be used as collateral (or seized in a forced liquidation event). However, the asset can still be borrowed. In summary, the Collateral Factor is the maximum you can borrow against a particular asset. **Example**: if the collateral factor for $APT is 80%, the maximum amount of USDT you would be able to borrow in other assets (assuming a deposit of $APT 1000) would be $800. --- # 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://ezfi.gitbook.io/arcogitbook/models/collateral-and-reserves.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.