Core Terms
Lending Formula
Loan-to-Value (LTV) Ratio
The core formula used in the protocol is the Loan-to-Value (LTV) ratio. The LTV ratio determines how much a borrower can borrow against their collateral. In this protocol, the LTV is capped at 80%.
LTV Formula:
Where:
Loan Amount is the amount borrowed.
Total Collateral Value is the sum of the values of the assets deposited as collateral.
For example, if a borrower deposits $10,000 worth of ETH and DAI, they can borrow up to $8,000 (80% of $10,000).
Health Factor (HF):
The health factor is a critical aspect of the protocol’s risk management. It is used to determine whether a borrower’s collateral is still sufficient to cover their loan. The health factor is calculated as:
If HF > 1, the loan is safe.
If HF < 1, the loan is under-collateralized and eligible for liquidation.
Liquidation Threshold:
To prevent abrupt liquidation, a buffer is set in place. The liquidation threshold is 85% LTV, meaning if the LTV ratio of a loan exceeds 85%, liquidatoin can occur.
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