Risk parameters

Loan To Value

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 $C_1, \dots ,C_n$ , and their LTVs corresponding to $LTV_1, \dots , LTV_n$ , maximum LTV is

\frac{C_1 \times LTV_1 + \cdots + C_n \times LTV_n }{C_1+\cdots+C_n}

Liquidation Threshold

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 $C_1, \dots ,C_n$ , and their liquidation threshold, respectively, $LT_1, \dots, LT_n$ , the liquidation thresholds of wallet is

\frac{C_1 \times LT_1 + \cdots + C_n \times LT_n}{C_1 + \cdots + C_n}

Health Factor

For a wallet, these risk parameters enable the calculation of the health factor:

H_f = \frac{C_1 \times LT_1+ \cdots + C_n \times LT_n}{B}

where $B$ is total borrows (in dollars), $C_1,\dots,C_n$ is the values (in dollars) of collateral assets, and $LT_1, \dots, LT_n$ is their liquidation threshold, respectively. When $H_f < 1$ the loan may be liquidated to maintain solvency.

Liquidation penalty

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.

Reserve Factor

The reserve factor allocates a share of the protocol's interests to a collector contract as reserve for the ecosystem.

Risk Parameters

BSC Lending Pool

FTM Lending Pool

ETH Lending Pool

Price Discovery

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.

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Last updated 1 year ago