Risk parameters

Collateral assets have specific value regarding the feasibility of the loans borrowed and supplied in the Lenfi P2P (Aada V1) protocol. Therefore, understanding the risks of using different collateral types is crucial for the Lenfi community.

Health Factor

The Health Factor is the numeric representation of the safety of your deposited assets against the borrowed assets and their underlying value. The higher the value, the safer your funds' state is against a liquidation scenario. If the Health Factor reaches the liquidation threshold, the dApp will allow the lender to trigger a liquidation procedure.

The Health factor is the Collateral (value in ADA) divided by the sum of the Loan (value in ADA) and Interest (value in ADA), all divided by the Liquidation Threshold.

  • The Collateral value of ADA is determined by estimating how much it would fetch if sold on a DEX.

  • The Loan value of ADA is calculated by estimating how much collateral can be purchased with ADA on a DEX.

  • The Interest value of ADA is determined by estimating how much of collateral can be bought with ADA on a DEX.

You can read more about the Lenfi Liquidation Oracle and how liquidation works in V1 here.

Liquidation Threshold

The Liquidation Threshold is an indicator that determines whether a position is undercollateralized. If the Health Factor reaches 1 or below, the loan is considered undercollateralized, and the lender can trigger the Liquidation Oracle.

Assets used as collateral

Collateral assetLiquidation thresholdRecommended Health Factor

ADA

1.3

1.5

LENFI

2

1.5

MIN

1.7

1.5

WMT

2

1.5

LQ

2

1.5

WRT

2

1.5

COPI

2

1.5

DJED

2

1.5

SHEN

2

1.5

SNEK

2

1.5

IUSD

1.7

1.5

IAG

2

1.5

HUNT

2

1.5

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