DeFiner Protocol
v2 HODLer Market

Risks Control Parameters

How does the protocol to control borrower default risks?
Loans on HODLer market are all over-collateralized. This design ensures borrowers have the willingness to pay back interest plus loan principal on time. The following parameters are used to control the default risks.

Collateral Factor

The collateral factor is the maximum percentage a user can borrow against a collateral asset.
For example, if the collateral factor for ETH is 70%, for 1 ETH collateral, a borrower is able to borrow 0.70 ETH worth of the corresponding crypto asset. (For example, if a borrower receives $700 worth of DAI, he/she must deposit $1000 worth of ETH.)

Liquidation Threshold

The liquidation threshold is the percentage at which a loan is defined as undercollateralized. For example, a liquidation threshold of 80% means that if the loan amount rises above 80% of the collateral, the loan is undercollateralized and could be liquidated.

Liquidation Discount

The liquidity discount is the discount percentage a liquidator gets when liquidating the collateral of a borrower. For example, if the ETH liquidation discount is 10%, and the current market price is $2,000, the liquidator could swap the ETH collateral at 10% discount which is $1800.

Collateral Value Cap

The collateral value cap (CVC) is the maximum value of the base token that could be used as collateral to borrow against. This parameter is introduced to mitigate the over-borrow risks of the base token. CVC is a consideration of primary market trading volume and market cap.
Calculations: CVC = Minimum of (Market Cap*2%, accumulate of past 5 days’ trading volume)
Market Cap: Market cap is defined as circulating supply * average trading price.
Primary Market Trading volume: Trading volume is a good indicator of the liquidity of crypto. It measures how much crypto that can be sold on the market without a sign of the price change impact of such crypto. Here we use the accumulated 5 days' trading volume.
Update Frequency: CVC should be calculated on the first day of each month and be updated 10th of each that month.

Borrow Cap

The borrow cap is the maximum amount of loan on the market that can be borrowed against the base token, regardless of how much the collateral is worth.
Borrow Cap= Collateral Value Cap * Collateral Factor