Liquidations

When leveraging strategies with Loop, your open position serves as collateral for external protocols/actions: this includes both your initial funds and the borrowed amount obtained from the protocol. Loop continually monitors the composition of your portfolio and can assess its value at all times, with all calculations made in the underlying borrowed asset in which you opened that position.

Loop employs a risk model to continuously evaluate the quality-value of an open position. For each position, it calculates a health factor. This health factor is publicly accessible, allowing anyone to check it and liquidate positions with a health factor less than 1.

As a user managing a looped position, it's crucial to closely monitor your health factor. Maintaining a health factor just above 1 places you at risk of liquidation, as even minor fluctuations in market values can quickly bring it below this critical threshold.

Liquidation Fee

If an open position is liquidated, a certain percentage of the assets goes to the third-party liquidator who carried out the liquidation, while another portion is allocated to the dLP and lpETH stakers. These liquidation fees can vary between different strategies, depending on the designated safety margin for liquidation errors.

• 3-4% going to the liquidator

• 1,5% to dLP / lpETH staker

Definitions

Health Factor

The Health Factor is a numerical indicator of the stability of your account. Should your Health Factor fall below 1, or approach this critical level, you are at risk of facing liquidation. The higher this value, the more secure your position is considered.

$$HF (t)= \frac{TWV(t)} {b(t)+interest accrued(t)}$$

b(t)	borrowed amount

Total Value

Represents the Positions balance in the underlying asset.

$$TV (t)= \sum c_i (t) * p_i (t)$$

c_i	balance of the i-th asset in the position
p_i	price if i-th asset calculated in underlying asset (from oracle)

Threshold Weighted Value

$$TWV(t)= \sum min(Q_i(t), c_i(t)*p_i(t), LT_i)$$

Q_i	Quota amount for i-th asset in the position
c_i	balance of the i-th asset in the position
p_i	price if i-th asset calculated in underlying asset (from oracle)
LT_i	the Loan-To-Value liquidation threshold for the i-th asset

Liquidation Threshold

Liquidation thresholds represents maximum allowable ratio of Loan-To-Value for the i-th asset (LTV is reciprocal of over-collaterization ratio of i-th asset). LT_i for underlying asset is constant and equals:

$$LT_U = 100\%-Liquidation  Premium - Liquidation  Fee$$

Loop uses statistics of 5-min, 15-min, 1h change of i-th asset's price (price is in the underlying asset) for the last 180 days.

Anybody can run a liquidator bot and secure the protocol. You can chat about setting up your bot and other liquidator-things in Discord.