Liquidations
Risk Management and Safeguards on the Aptin Platform
Last updated
Risk Management and Safeguards on the Aptin Platform
Last updated
In the Aptin platform, the Liquidation Threshold and Maintenance Margin are critical mechanisms designed to safeguard the stability of the lending system and the security of user assets. These parameters help Aptin team manage the risk of borrowers' debt and ensure the sustainability of lending activities.
In Aptin liquidation contracts, all users' assets are denominated in USD. User "Borrow Balance" and "Supply Balance" are calculated using our 2 oracles, Pyth (main) and Switchboard (backup). Using these oracles, we can calculate user current LTV and Health factor.
Liquidation in the Aptin protocol having the following risk management parameters:
LTV (loan to value)
Liquidation Threshold
Health Factor
Liquidation Penalty
The Loan to Value (LTV) ratio defines the maximum amount of assets that can be borrowed with a specific supply. Once a borrow occurs, the LTV evolves with market conditions.
The Liquidation Threshold refers to the maximum safe ratio of a user's debt to their collateral value. When the value of a user's debt relative to their collateral exceeds this threshold, their collateral becomes at risk of liquidation. This means other users can purchase the debtor's collateral at a certain discount to cover part of the debt.
For example, if the Liquidation Threshold is set to 75%, this indicates that the liquidation process may be initiated once the borrower's debt value reaches 75% of their total collateral value.
For each wallet, the Liquidation Threshold is calculate as the weighted average of the Liquidation Thresholds of the collateral assets and their value:
For each wallet, these risks parameters enable the calculation of the health factor:
When the position may be liquidated.
The liquidation penalty is 5% and the penalty is used as the Aptin DAO Vault Reserve and Agreement Reserve.
The liquidator of Aptin is the Aptin Liquidation Contract.
When the liquidation of a user's account is triggered, the liquidation contract will calculate the user's Health factor (including the outstanding interest).
The liquidation contract uses the maximum value of the user's Total Supply for liquidation. After the liquidation is completed, the liquidation contract returns the user's remaining assets. (Due to price fluctuations and transaction slippage during the liquidation process, which can lead to deviations in the liquidated funds, the maximum value is used for liquidation in order to protect the security of the Aptin agreement, and the liquidation details are displayed in the user's liquidation record)
Aptin liquidation using DEX as the counterparty, the current Aptin integrated DEX for Hippo.
Bob initially supplies 1BTC to Aptin and borrows 10ETH, with BTC priced at $20,000 and ETH at $1,500. This sets Bob's total supply at $20,000 and total debt at $15,000. When ETH's price increases by 1.13%, Bob's account health factor drops to 0.95, triggering liquidation at an ETH price of $1,700.
During liquidation, a 5% penalty is applied, increasing Bob's total debt to $17,850. To cover this, 0.8925 BTC is sold for $17,850: $17,000 to settle the debt and $850 for the liquidation penalty. The remaining 0.1075BTC is returned to Bob, completing the liquidation process.
