How Does Scallop Work?

Overcollateralized lending pools on Sui with per-asset risk parameters

Standard overcollateralized lending model adapted for Sui's object-centric architecture. Supports major Sui assets (SUI, wUSDC, wETH, etc.) with governance-set collateral ratios.

Isolated sub-accounts leveraging Sui's native account model for risk isolation

Users can manage multiple sub-accounts to isolate collateral and debt positions. Leverages Sui's unique account object model for more granular risk management than EVM-based isolation modes.

Trilinear interest rate model with three kink points for stability-optimized rate curves

Unlike standard dual-slope (Aave/Compound) interest rate models, Scallop uses a trilinear model with three utilization kink points. This provides more granular control over rate behavior at different utilization levels but introduces additional parameter risk.

Soft liquidation with partial collateral seizure to minimize market impact

Borrowers' collateral is partially liquidated when health factor drops below threshold, reducing slippage compared to full liquidation. Standard partial liquidation pattern, well-proven in DeFi.

Multi-oracle with Pyth, Switchboard, and Supra feeds plus TWAP fallback

Uses three independent oracle providers with TWAP-based fallback for price verification. Distributed Oracle Agreement (DORA) adds tamper resistance. More oracle diversity than most Sui protocols.

veSCA vote-escrow governance for emission direction and protocol parameters

SCA holders lock tokens for veSCA to gain governance power and revenue share. Standard vote-escrow model (Curve-style) with time-weighted voting power.

Gauge-weighted SCA emission rewards directed by veSCA holders

veSCA holders vote to direct SCA emissions to specific lending pools. Standard gauge mechanism incentivizing liquidity in governance-chosen markets.

Revenue split between veSCA stakers, protocol treasury, and insurance fund

Protocol revenue from interest rate spreads is split between veSCA stakers (as yield), treasury (for development), and an insurance fund (for bad debt coverage).

If oracle feeds diverge (Pyth vs Switchboard disagreement), the trilinear rate model may use inconsistent price inputs, leading to mispriced interest rates and arbitrageable borrowing positions.

While sub-accounts isolate individual position risk, a SUI-wide price crash affects all sub-accounts simultaneously. Isolation provides false sense of diversification when underlying collateral is correlated.

Partial liquidations assume sufficient DEX liquidity to absorb collateral sales. On Sui, DEX liquidity is thin enough that even partial liquidations can cause significant slippage during stress events.

veSCA holders directing emissions to specific pools could create moral hazard — voters incentivize pools where they are positioned, rather than pools that optimize protocol safety.

Heavy SCA emissions to attract liquidity may suppress organic interest rates, making the protocol dependent on token incentives. If SCA price drops, mercenary capital exits rapidly.