Ratio Finance Introduces Liquidations

Published on: 19.10.2022
Ratio Finance Introduces Liquidations

Ratio Finance, a technique for Collateralized Debt Positions on Solana that focuses on risk assessment and mitigation introduces Liquidations.

Ratio Finance introduces liquidations to maintain the system healthy for their customers and to grow into accepting LP tokens.

Yet, they have only accepted stable-stable pairs to minimize the risk of liquidation. Because USDr is an overcollateralized kind of debt, the TVL of Ratio Finance must always be much more than the amount of USDr in circulation.

Dynamic Risk Management

There is a Collateralization Ratio in place for each Collateralized Debt Position (CDP) available Ratio based on the risk rating of the liquidity pool as determined by the Ratio Risk Ratings (RRR). For example, the USDT-USDC liquidity pool on Saber has rated ‘AA’ according to the RRR, with a Collateralization Ratio of 110%.

This means that a user must deposit $110 in collateral to generate $100 in USDr.

Repay to be Safe

Because of the fluctuating macro-environment, the Collateral Value may fall below the Collateralization Ratio. As a result, a liquidation procedure will be begun to safeguard the protocol and its users from any potential negative consequences.

Ratio Finance encourages customers to use the Collateral Deposited to Debt to regularly check the health of their position.

They provide borrowers with two choices for repaying their debt:

A borrower purchases USDr on the open market and repays on the platform.

The borrower generates more LP tokens and deposits them immediately on the platform.
These strategies enable its consumers to raise their Collateral Debt ratio while avoiding Liquidation.

Partial Liquidation

As previously indicated, in a liquidation event, the Ratio Protocol will often not unwind and liquidate its users’ whole position; rather, only a portion of the collateral liquidates, and the borrower will return to a healthy position.

Furthermore, fees reflect the protocol’s haste to liquidate and unwind the LP position at some expense to account for trading fees and slippage. By making this little modification to the borrower’s position, Ratio’s Liquidation Engine recalibrates the borrower’s position, allowing for a risk-on setting.

Risk Epochs and Full Liquidation

Ratio’s Risk Engine monitors and updates each user’s vault regularly. These tests take place in epochs with durations set by the Ratio DAO.

The Risk Epochs are now 10 minutes long, which implies that debtors’ positions are examined and set for repayment, partial liquidation, or complete liquidation every 10 minutes.

They should be aware that Ratio’s Liquidation Engine, is intended to avoid full liquidations until required.

However, complete liquidations might occur during moments of extreme volatility.

Conclusion

Essentially, the addition of liquidations enhances the health and sustainability of the Ratio Protocol. Serves as a gauge for its users to make risk-averse decisions constantly. It also lets them take volatile pairings as collateral to mint USDr, which is critical. This implies that its customers will soon be able to take advantage of leveraged yield farming for a variety of volatile and non-stable pairings, including sSOL/SOL, RAY/USDC, and mSOL/SOL. They are ecstatic about this option since it opens up a new avenue for Solana customers to obtain access to leveraged return possibilities at risk appetites of their choice!

About Ratio Finance

Ratio Finance is a Collateralized Debt Position protocol on Solana. The platform allows users to leverage their LP and other assets by minting risk-adjusted “USDr” against their collateral. Ratio Finance uniquely calculates the volatility of collateral to keep users’ assets safe.

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