Collateral

Collateral is security that must be deposited into a smart contract to secure the loan. Collateral can only be retrieved from the contract if the loan is repaid or liquidated.

On Lenfi, collateral can be any native Cardano asset or ADA itself. However, each pool has a determined collateral that can be used for the loans.

For example:

	Loan asset	Accepted collateral
Pool 1	ADA	LENFI
Pool 2	ADA	MIN
Pool 3	LENFI	ADA
Pool 4	LENFI	MIN

Each collateral token has a protocol-defined Liquidation threshold which is factored in the Health Factor calculation. A higher liquidation threshold means more collateral must be locked in order to retrieve the loan.

Collateral tokens

These are currently accepted collateral tokens.

Token	Liquidation threshold (LT)	Initial LT
ADA	130%	150%
LENFI	200%	220%
MIN	170%	190%
WMT	200%	220%
LQ	200%	220%
WRT	200%	220%
COPI	200%	220%
DJED	200%	220%
SHEN	200%	220%
SNEK	200%	220%
IUSD	170%	190%
IAG	200%	220%
HUNT	200%	220%
FLDT	200%	220%
OPTIM	200%	220%
INDY	200%	220%
FACT	200%	220%

The liquidation threshold is used when calculating the Health Factor for already active loans. While initial LT is used when a new loan is being created.

Health Factor

The Health Factor (HF) represents the health of the loan. A borrower can only take out a loan if the HF is greater than 1. If the health factor falls below 1, the loan can be liquidated. In the event of liquidation, the liquidator repays the borrower's loan in exchange for part or all of the collateral, depending on what is needed to compensate for the repayment.

Health Factor - new loan:

$Health Factor = (Collateral Value / (Loan Value) / Initial LiquidationThreshold$

Health Factor - loan is active

$Health Factor = (Collateral Value / (LoanValue + InterestValue)) / Liquidation threshold$

---

Example 1: New Loan with Healthy Factor

• Collateral Value: 200 ADA

• Loan Amount: 100 ADA

• Initial Collateral Ratio: 1.5

Health Factor = (200 / 100) / 1.5 = 1.33

The Health Factor is greater than 1, so the loan can be taken out safely.

Example 2: Active Loan with Risky Factor

• Collateral Value: 200 ADA

• Loan Amount + Interest: 155 ADA

• Liquidation threshold: 1.3

Health Factor = (200 / 155) / 1.3 = 0.992

The Health Factor has fallen below 1, meaning the loan can be liquidated.

Below functions consumed collateralValue and loanValue calculated using price feeds.

/// Calculate health from debt, collateral, threshold
pub fn calculate_health_factor(
  debt: Int,
  collateral: Int,
  threshold: Int,
) -> Option<Rational> {
  collateral * 1000000000000
    |> rational.new(threshold * debt)
}

/// Health factor >= 100%
pub fn check_is_overcollaterized(
  value_in_debt: Int,
  collateral_value: Int,
  liquidation_threshold: Int,
) -> Bool {
  // Check if loan is overcollaterized. Meaning 'value' in debt is large enought compared to collateral factor.
  let over_collateralized: Bool =
    when
      calculate_health_factor(
        value_in_debt,
        collateral_value,
        liquidation_threshold,
      )
    is {
      Some(rat) -> Some(rational.compare(rat, 1000000 |> rational.from_int))
      None -> None
    } == Some(Greater)
  over_collateralized
}

/// Health factor < 100%
pub fn check_is_undercollaterized(
  value_in_debt: Int,
  collateral_value: Int,
  liquidation_threshold: Int,
) {
  let under_collateralized: Bool =
    (
      calculate_health_factor(
        value_in_debt,
        collateral_value,
        liquidation_threshold,
      )
        |> option.map(rational.compare(_, 1000000 |> rational.from_int))
    ) == Some(Less)
  under_collateralized
}