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The maximum amount that can be borrowed for a specific mortgage is determined by the Loan To Value (LTV) ratio. For example, if the LTV is 75%, borrowers will be allowed to borrow 0.75 ETH worth of corresponding currency for every 1 ETH worth of collateral.
For a wallet, the maximum LTV is calculated as the weighted average of LTVs of collateral assets and their value. In particular, for a wallet that deposits the collateral assets that are worth in dollars
, and their LTVs corresponding to
, maximum LTV is
The liquidation threshold is the percentage at which a position is defined as undercollateralised. For example, a Liquidation threshold of 80% means that if the value rises above 80% of the collateral, the position is undercollateralised and could be liquidated.
The difference between the Loan To Value and the Liquidation Threshold is a safety cushion for borrowers.
For each wallet, the liquidation threshold is calculated as the weighted average of the liquidation thresholds of the collateral assets and their value. In particular, for a wallet that deposits the collateral assets that are worth in dollars
, and their liquidation threshold, respectively,
, the liquidation thresholds of wallet is
For a wallet, these risk parameters enable the calculation of the health factor:
is total borrows (in dollars),
is the values (in dollars) of collateral assets, and
is their liquidation threshold, respectively. When
the loan may be liquidated to maintain solvency.
Liquidation penalty is a bonus applied to the price of collateral assets purchased by liquidators as part of the liquidation of a loan that has reached the liquidation threshold.
The reserve factor allocates a share of the protocol's interests to a collector contract as reserve for the ecosystem.
The frequency of price updates is determined by the liquidation strategy. We use a margin method, which means that prices are refreshed whenever the deviation exceeds a certain threshold. For the price feed, we rely on Chainlink's decentralized oracles.