@i175316j

Can leverage be dynamically adjusted by protocol governance? Yes, protocol governance can and likely will be used to dynamically adjust maximum allowable leverage as a key risk parameter. A decentralized autonomous organization (DAO) overseeing a liquid restaking protocol or a specific AVS could vote to lower the global collateral factor or maximum Loan-to-Value (LTV) ratio during periods of perceived high risk, such as when new, unproven AVSs are integrated or when general market volatility spikes. Conversely, they might increase these limits during stable, bullish conditions to maximize capital efficiency. This acts as a manual circuit breaker. However, this approach has downsides, including governance lag, the potential for politicization, and the risk of pro-cyclical adjustments that could exacerbate a crisis if limits are tightened during a downturn.

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