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Health Factor & Defaults

Health Factor

Every leverage position will be assigned a Health Factor (HF) that gives the user a sense for how at-risk they are of their loan entering into default, which occurs when LTV rises above the Liquidation Threshold of 80%.
HF=(Deposit+Loan)∗(LiquidationThreshold/Loan)HF = (Deposit+Loan)*(Liquidation Threshold / Loan)
When
HF<=1.0:HF <= 1.0:
red font color, assets are liquidated
  • When HF <= 1.1: orange font color
  • When HF <= 1.2: yellow font color
  • When HF > 1.2: green font color
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Liquidation Protection

SPICE has designed a novel liquidation protection system that automatically de-levers the borrowers' loan instead of proceeding with a default in the event that a borrower's health factor has fallen below 1.0.
The deleveraging system reduces the borrower's deposit amount by a flat fee of 0.055 ETH to cover any gas fees incurred by the protocol.
Any positions (smaller than 0.05 ETH) that are unable to cover the flat fee will be liquidated.
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Liquidation

When a loan is liquidated, the loan and any accrued interest are automatically paid off using the borrowers deposit. The borrower gets their NFT back and keeps the remaining portion of their deposit minus a 10% 'default fee' which is sent back to Prologue Leverage Vault depositors.
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Disclaimer

  • This does not constitute financial advice.
  • SPICE makes no guarantees around future smart contract performance.
  • Interacting with either Prologue Leverage or the Prologue Leverage Vault is not risk-free.