2.5.De-Fi Risk Management

As a De-Fi service, we provide loans through over-collateralization, and its risk parameters allow you to mitigate the market risk of currencies supported by Liquid Prime De-Fi. Each borrowing is backed by collateral that is subject to volatility. Sufficient margins and incentives are required to keep the position as collateral in adverse market conditions. When the collateral value falls below the threshold, the position is closed. To avoid liquidation, it is necessary to monitor the collateral ratio, and when the collateral value falls, liquidation can be prevented through additional deposits.

2.5.1. Collateral

This service will provide a mortgage service centering on the major currencies of the SOL and SOLANA camps. However, all digital assets are exposed to the risk of price volatility. For this reason, we cannot regard them as complete guarantees of the solvency of the loan protocol. Market risk can be mitigated through Liquid Prime's risk parameters that define collateral and liquidation rules

2.5.2. Loan to Value

The LTV (Loan to Value) ratio refers to the value of currency that can be borrowed as much as possible using virtual assets as collateral. It is expressed as a percentage, and LTV = 70% means that for the value of 1 SOL, you can borrow up to the value of 0.7 SOL in that currency. LTV may be changed and announced at any time according to market conditions.

2.5.3.Liquidation Threshold

The liquidation threshold is the value defined as the ratio before the position goes over to lack of collateral. If the liquidation threshold is set at 75%, the value of the collateral decreases and the ratio of the loan amount increases and liquidation occurs when it reaches 75%. The difference between LTV and liquidation threshold will act as a buffer to maintain the stability of this asset pool.

2.5.4.Liquidation Account Support Fund

Liquid Prime calculates the amount of profit from the partial difference due to the liquidation of the customer's loan position and deposits the full amount to the reserve fund, and the deposited reserve fund for the case is used as a compensation amount. If the following conditions are met, full compensation will be made, and if there is no accumulated compensation amount, it will be distributed according to the ratio of the total amount.

We support the recovery of liquidated assets when the following conditions are met:

1. When the value of collateral assets rises within 3 days (within 72 hours from the time of liquidation) from the liquidation price, and is 10% or more lower than the existing liquidation threshold,

2. In the case of depositing 150% of the existing loan assets within 10 days and applying for the liquidation protection fund.

3. This bailout will close on a first-come, first-served basis.