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IEP Risk

Just like on the member level, it is important that each network credit line has credit terms that align with the risk it exposes to other networks. Import/export limits ensure a network’s total imports/exports is in a healthy proportion to the economic activity of both the IEP and the individual network. This is to ensure the stability of all participating networks. Other credit terms may be implemented in order to contribute to stability and/or internetwork velocity. Infrastructure for assessing Network Credit Risk will also be integral to properly assigning credit terms and will come as a result of scaling IEP.

Also like on the member level, each network’s credit line has an expiration that can result in a default. This can happen when members on an exporting network are unable to find anything worthwhile to acquire on an importing network. This results in the exporting network debt position expiring and becoming lost debt to be covered by the assurance pool. This risk is mitigated by both the import/export limits, as well as an import fee charged on the importing member (the sender of credits).

An Import fee is used as both a buffer to the export limit, as well as a risk diversification. To buffer the export limit, the import fee rate correlates with the exports utilized, meaning the more a network exports, the more expensive it will be to continue exports (as shown in the example Import fee rate graph).

To diversify the IEP risk, import fees charged are routed to the network with the highest relative export (credit) balance. This is to rectify the trade imbalance for the network that needs it most.