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Health Factor & Liquidation

Liquidation event takes place when the position of a LP move against them to the point where the Heath Factor drops below the Liquidation Threshold. The Liquidation Threshold will be different for different pairs and asset. To make sure all the lender's fund are SAFU, we will initially set a quite safe liquidation threshold and we will keep increasing our liquidation mechanism and tools, looking forward to lower down the liquidation threshold in the future.

Heath factor

Health Factor=Risk Adjusted Position ValueLoan Value\text{Health Factor} = \frac{\text{Risk Adjusted Position Value}}{\text{Loan Value}}

Maximum Leverage allowed

1x - 5x\text{1x - 5x}

Risk Adjustment Ratio

When calculating the Health Factor, there is a risk adjustment ratio that will be applied to the volatile asset, and the collateral value after the risk adjustment is

Risk Adjusted Position Value=(Total Collateral×Collateral Risk Adjusted Ratio)Risk \ Adjusted \ Position \ Value = \sum(Total \ Collateral\times Collateral \ Risk\ Adjusted \ Ratio)

For Stable asset and Altcoin with high FDV

USDT

1

USDC

1

WBTC

0.95

SOL

0.95

JLP

0.95

Trump

0.8

Liquidation Threshold

Example

Assume Sol price: $170; JLP price: $4

Example 1:

  • If Bob deposits 1 SOL and 1 JLP, and borrow 1 SOL to form LP position

Health Factor=(2×170+4×0.951×170=326.81×170=1.92\text{Health Factor} = \frac{(2\times170+4)\times 0.95}{1\times 170} = \frac{326.8}{1\times 170} = 1.92
  • Example2:

    • If Bob stakes 1SOL, borrow out 4 SOL (5x leverage)

Health Factor=5×170×0.954×170=1.1875\text{Health Factor} = \frac{5\times170\times0.95}{4\times170} = 1.1875

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