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KNOWLEDGEBASE
APY vs APR
How is Net APY calculated?
Liquidation Penalty
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Liquidation Penalty
Rationale for Liquidation Penalty values
Goals: - liquidation is lucrative for liquidator, - liquidation improves health of the borrower;
Given
h
e
a
l
t
h
=
1
−
b
c
u
/
b
c
health = 1 - bcu/bc\\
h
e
a
lt
h
=
1
−
b
c
u
/
b
c
for
deposited asset A worth of
d
with collateral factor
c
f
A
cf_{A}
c
f
A
,
borrowed asset B worth of
b
with liquidation threshold
l
t
B
lt_{B}
l
t
B
Liquidation starts when
h
0
=
1
−
(
b
/
l
t
B
)
(
d
∗
c
f
A
)
=
1
−
b
d
∗
c
f
A
∗
l
t
B
=
0
,
⇓
d
/
b
=
1
/
(
c
f
A
∗
l
t
B
)
h_0 = 1 - \frac{(b/lt_B)}{(d*cf_A)} = 1 - \frac{b}{d*cf_A*lt_B} = 0,\\ \Downarrow\\ d/b = 1/(cf_A*lt_B)
h
0
=
1
−
(
d
∗
c
f
A
)
(
b
/
l
t
B
)
=
1
−
d
∗
c
f
A
∗
l
t
B
b
=
0
,
⇓
d
/
b
=
1/
(
c
f
A
∗
l
t
B
)
Upon liquidation of portion
α
\alpha
α
of B with penalty
p
A
p_A
p
A
, health must increase:
h
1
=
1
−
(
b
(
1
−
α
)
)
c
f
A
∗
l
t
B
∗
(
d
−
α
∗
b
(
1
+
p
B
)
)
>
h
0
=
0
⇓
b
(
1
−
α
)
<
c
f
A
∗
l
t
B
∗
(
d
−
α
∗
b
(
1
+
p
B
)
)
⇓
(
1
−
α
)
<
c
f
A
∗
l
t
B
∗
(
(
d
/
b
)
−
α
∗
(
1
+
p
B
)
)
1
−
α
<
1
−
α
∗
(
1
+
p
B
)
∗
c
f
A
∗
l
t
B
α
>
α
∗
(
1
+
p
B
)
∗
c
f
A
∗
l
t
B
(
1
+
p
B
)
∗
c
f
A
∗
l
t
B
<
1
(
1
+
p
B
)
<
1
c
f
A
∗
l
t
B
⇓
p
B
<
1
c
f
A
∗
l
t
B
−
1
h_1 = 1 - \frac{(b(1-\alpha))}{cf_A*lt_B*(d-\alpha * b (1 + p_B))} > h_0 = 0\\ \Downarrow\\ b(1-\alpha) < cf_A*lt_B*(d-\alpha * b (1 + p_B))\\ \Downarrow\\ (1-\alpha) < cf_A*lt_B*((d/b)-\alpha * (1 + p_B))\\ 1 - \alpha < 1- \alpha * (1 + p_B) * cf_A*lt_B \\ \alpha > \alpha * (1 + p_B) * cf_A*lt_B\\ (1 + p_B) * cf_A*lt_B < 1\\ (1 + p_B) < \frac{1}{cf_A*lt_B}\\ \Downarrow\\ p_B <\frac{1}{cf_A*lt_B} - 1
h
1
=
1
−
c
f
A
∗
l
t
B
∗
(
d
−
α
∗
b
(
1
+
p
B
))
(
b
(
1
−
α
))
>
h
0
=
0
⇓
b
(
1
−
α
)
<
c
f
A
∗
l
t
B
∗
(
d
−
α
∗
b
(
1
+
p
B
))
⇓
(
1
−
α
)
<
c
f
A
∗
l
t
B
∗
((
d
/
b
)
−
α
∗
(
1
+
p
B
))
1
−
α
<
1
−
α
∗
(
1
+
p
B
)
∗
c
f
A
∗
l
t
B
α
>
α
∗
(
1
+
p
B
)
∗
c
f
A
∗
l
t
B
(
1
+
p
B
)
∗
c
f
A
∗
l
t
B
<
1
(
1
+
p
B
)
<
c
f
A
∗
l
t
B
1
⇓
p
B
<
c
f
A
∗
l
t
B
1
−
1
is the condition for liquidation to increase health. Given
m
a
x
(
c
f
)
=
0.9
max(cf)=0.9
ma
x
(
c
f
)
=
0.9
p
<
1
0.9
∗
l
t
−
1
p <\frac{1}{0.9*lt} - 1
p
<
0.9
∗
lt
1
−
1
is then a safe condition for liquidation penalty for any asset.
KNOWLEDGEBASE - Previous
How is Net APY calculated?
Next - GUIDES
Lending and Borrowing Guide
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1mo ago
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