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%.
When 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
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.
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.
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.
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