# Collateral and Reserves (Base)

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{% tab title="Reserve Factor" %}
Reserves are an accounting entry in each soToken contract that represents a portion of historical interest which can be withdrawn or transferred through the protocol's governance. A small portion of borrower interest accrues into the protocol, determined by the reserve factor.\
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The reserve factor is the percentage of interest paid to the Sonne Finance. If the reserve factor is 10, then that would imply a 10% rate of interest paid on the borrowed asset allocated to Sonne.
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{% tab title="Collateral Factor" %}
soTokens 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 soToken.

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.<br>

**Example**: if the collateral factor for USDC is 75%, the maximum amount of USDC you would be able to borrow in other assets (assuming a deposit of 1000 USDC) would be $750.
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[Sonne](https://sonne.finance) implements the collateral and reserve mechanic implemented by Compound Finance.&#x20;

| TOKEN  | COLLATERAL FACTOR | RESERVE FACTOR |
| ------ | ----------------- | -------------- |
| USDbC  | 85%               | 13%            |
| USDC   | 85%               | 13%            |
| DAI    | 85%               | 13%            |
| wETH   | 70%               | 15%            |
| cbETH  | 65%               | 18%            |
| wstETH | 60%               | 18%            |
| AERO   | 30%               | 30%            |

{% hint style="info" %}
Collateral factors, and/or reserve factors, may be adjusted from time to time, depending on factors such as the liquidity for a particular asset.
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