💰Liquidation Mechanism

Core parameters

LTV（Loan-to-Value Ratio）

• It represents the ratio between the current loan amount and the value of the collateralized asset.

• It is used to assess the borrower's asset-liability situation.

Maximum LTV

• The platform allows a maximum borrowing ratio. If the LTV exceeds this value, the user will not be able to borrow further.

Liquidation Threshold

• The LTV value that triggers liquidation. If the LTV reaches or exceeds the liquidation threshold, the system will automatically liquidate part or all of the collateral.

Specific Parameter Design

Asset	Maximum LTV	Liquidation Threshold	Liquidation Target LTV
ETH	60%	70%	60%
SOL	60%	70%	60%
USDC	60%	80%	60%
USDT	60%	80%	60%
BONK	20%	30%	20%

Liquidation Trigger Formula

Current LTV Calculation

$Current\, LTV \,Calculation=\frac{Total\,Borrowing\, Value}{Real-time\, value\, of\,Collateral}$

liquidation conditions

Liquidation is triggered when the following conditions are met:

$Current \, LTV \, Calculation≥Liquidation \, Threshold$

Liquidation scale

After liquidation, LTV returns to a safe range:

$Target \ Collateral \,Value=\frac{Current \,borrowing\, amount}{Safe \ LTV}$

The value of the collateral that need to be liquidated is:

$\Delta Collateral \, Value=\frac{Borrowing \, amount-LTV \,target \,Collateral \, Value}{1-LTV target}$

Example ：ETH

Assuming no liquidation rewards.

• Collateral Value: $10,000 ETH

• Loan Amount: $7,500

• Maximum LTV: 75%, Liquidation Line: 85%

• Liquidation Target LTV: 75%

Normal State:

$Current \, LTV=\frac{7500}{10000}=75$%，Not reaching the liquidation line.

Liquidation due to price fluctuations: Suppose the price of ETH drops, and the collateral value becomes $8,500.

$Current \,LTV=\frac{7500}{8500}≈88$% > liquidation line（85%）

Liquidation Size Calculation:

• Target LTV = 75%

• Collateral Value to be Liquidated= $\frac{7500-8500\times0.75}{1-0.75 }=4,500$

Execute Liquidation

• Sell ETH worth $4,500 to repay part of the debt

• bringing the LTV back to a safe range

LTV after liquidation=$\frac{7500-4500}{8500-4500}=75\%$

Liquidation rules:

When a user's position contains multiple assets and the LTV reaches the liquidation line, liquidation will begin. To ensure fairness and avoid systemic risk, the following restrictions are set for the liquidation process:

Priority Liquidation Rules

• High-Risk Asset As First Priority: Assets with higher volatility or greater risk, such as BONK, are given first priority for liquidation.

• Liquidity As Second Priority: Highly liquid assets, such as ETH and USDC, are given second priority for liquidation to ensure minimal market impact during the process.