Collateral Liquidation Calculations, examples

LTV, borrowing power, liquidation calculations

Liquidation

Price

Price of Currency

2

Available Balance

Users current saving pool balance in this currency

200

Amount to Deposit

the amount that users want to deposit in Currency Unit

100

available amount to deposit

total amount in your metamask to deposit

1000

New Available Balance

Users new account balance after deposit

300

Additional Daily Income

add on interest users will earn after deposit

11.52

New Daily Income

Users new total interest to earn

34.56

Borrowing Power

The incremental money users can borrow in USD unit

120

New Available Borrowing Power (Deposit)

the new remaining money users can borrow

3620

Deposit Value

Total amount in USD to deposit

200

Available Borrowing Power

the money users can borrow before loan trasaction

3500

New Available Borrowing Power (Borrow)

the new remaining money users can borrow

3380

Amount to Borrow

the amount that users want to BORROW in Currency Unit

100

Borrow Value

Total amount in USD to deposit

200

Amount to Withraw

the amount that users want to withraw in Currency Unit

50

Amount to Repay

the amount that users want to repay in Currency Unit

50

 

LTV= Loan/collateral Value
Initial LTV ratio is predefined value by DeFiner: 60% right now
Maintaining LTV ratio is pre-defined value by DeFiner: 85% right now

Initial Minimum Required Collateral Value = borrow amount / Initial LTV ratio

 

Initial Loans Balance

The total amount a user currently owed at T0

$0

Borrow Amount

The amount that the user wants to borrow

$8000

CBB: Current borrow balance

CBB is the principal + accrued interest

$6030

Initial Loan to Value Ratio (ILTV)

Minimum LTV ratio required when the user initiates a loan this Ratio is currently pre-defined by DeFiner to 60%.

60%

Initial Minimum Required Collateral Value

Minimum Collateral value needed to initiate a loan;

Equals to borrow amount / Initial LTV Ratio (ILTV)

$13,000

Total Collateral Value

The total value of the collateral of Users

400,000

 

For example,  Alex has 0$ loans balance outstanding right now and  wants to borrow 8,000$, then Initial Minimum Required Collateral Value = 8,000/ 60%=13,000$

 

Available Borrowing power = Total Borrow limit – loans balance

 

Total Borrow limit = Deposit balance * Initial LTV ratio

 

Alex has 100 ETH, 1 ETH = 100$, Alex deposits 100ETH to DeFiner Savings account with value of 10,000$, current loans balance is 0$, then Total Borrow limit is 10,000* 60% = 6,000$; Current Alex’s Loans balance = 0$, Alex’s borrowing power, which is the maximum amount that Alex can borrow, is: 6,000$ - 0$=6,000$;

 

Accrued interest = days of borrowing/ 360 * APR * Principle

 

CBB: Current borrow balance @ T(x) = principle + accrued interest

After 15 days of borrowing 6,000$ @ 12% APR, now Alex’s accrued interest= 15/360*12% * 6,000$ = 30$ ;  Current Borrow Balance= 6,000$ + 30$ = 6,030$

 

LTV: Loan to Value Ratio

Loans Outstanding/Collateral Market Value

50%

MLTV: Maintaining Loan to Value Ratio, also called Liquidation Ratio

Maximum LTV a user account can be and required to avoid liquidation event happen; This ratio is used to protect borrower default. This ratio is currently pre-defined by DeFiner to be 85%.

85%

MMRCV: Maintaining Minimum Required Collateral Value

Minimum Collateral value needed to avoid liquidation

Equals to borrow amount / Maintaining LTV Ratio (MLTV)

$7094

 

Maintaining Minimum Required Collateral Value= current borrow balance / Maintaining LTV ratio

 

In this case, the Maintaining Minimum Required Collateral Value = 6,030$/85%=7094,12$

 

If the value of ETH drops to certain level and the total assets that Alex owned only worth 7,094.12$, it hits the Maintaining Minimum Required Value

 

 

 

User Assets at Liquidation (UAAL)

Minimum Collateral value that should be liquidated immediately

$5,067

Liquidation discount ratio

is a predefined value by Definer, which indicates the discount price of underlying collateral right now = 5%,

5%

Liquidation repay the amount (LRA)

fund which is returned to the lenders

$4,814

Collateral Market Price at Liquidation (CMPL)

The market price of the underlying collateral at liquidation

$71

Collateral Liquidation price

The price that the 3rd party get when liquidating underlying assets

$67

User Collateral Value after liquidation

User Collateral Value after Liquidation Event

$2,027

CBB after Liquidation

Total Users current saving pool borrow balance in USD after the liquidation

$1,216

LTV after liquidation

LTV after liquidation event

60.00%

Amount of User Assets at Liquidation (AUAAL)

Minimum Collateral AMOUNT that should be liquidated immediately

71.42857143

Collateral Balance after liquidation (CBAL)

User's collateral amount after liquidation

28.57142857

 

This will trigger the liquidation event, 3rd party can swap the collateral at a discounted liquidation price (Multiple Parties Can exercise this liquidation in different transactions);

 

Liquidation discount ratio is a predefined value by DeFiner, right now = 5%,

Collateral Market Price at Liquidation (CMPL) is the market price of underlying collateral when liquidation event happens.

 

The maximum collateral can be liquidated or swapped is equal to User Assets at liquidation (UAAL)= (CBB – MMRCV*ILTV)/(1-LDR-ILTV) = (6,030 – 7094.12 * 60%)/(1-%5-60%)=5067$

 

Amount of User Assets at Liquidation (AUAAL) = UAAL/CMPL = 5067/71=71.428

 

The amount of ETH 3rd party liquidator will get should be less than or equal to AUAAL= 71.428 ETH.

 

3rd party liquidator will swap underlying collateral at a Discounted Liquidation Price = Liquidation price * (1- Liquidation discount ratio) = 70.94*(1-5%) = 67.39

 

Liquidation repay amount (LRA)= AUAAL*CMPL*(1-LDR)=71.428*71*(1-5%)=$4814

 

This 4814$ will be returned to lender. Now Alex owns 100 – 71.428= 28.5714 (Note, all assets remaining on DeFiner digital savings account to continue earn interest until users to withdraw);

 

CBB after liquidation = CBB - LRA = $6030 – $4814 = $1,216

Collateral Value after liquidation = MMRCV-UAAL=$7094 - $5067 = $2027

LTV after liquidation = CBB after liquidation/ Collateral Value after liquidation = 1216/2027 = 60%