Design and Principle of the Liquidation
The design and principle of the Liquidation process on Larix

Product logic of Larix

Flowchart of User deposits, collateral and borrow limit:
If the collateral button of an asset is not switched on, then it won’t be liquidated.

Parameters:

  • Collateral factor: The maximum amount users can borrow is limited by the collateral factors of the assets they have supplied.
  • Liquidation line: The max debt ratio that an account can achieve before liquidation. It is designed to protect user assets from small price fluctuations.
  • L-Token: Deposit proof
  • Liquidation Reward: The reward for liquidation Initiator in the main pool,Bonfida pool,LARIX pool are 8% of the total liquidated value. The reward for liquidation Initiator in the xSOL pool is 2% of the total liquidated value.

Role play:

Several possible reasons leading to liquidation:

The floating value of collateral changes:

  • Withdrawing part of collateral increases debt ratio
  • The price of collateralized token decreases

The floating value of borrowings changes:

  • The interest of loans continuously increases.
  • The price of borrowed assets increases

Liquidation process:

1. Liquidate instruction

1.1 - Repay the borrowed assets for the liquidated account:

  • Only one type of asset can be liquidated each time.
  • The ‘asset to repay’ and ‘asset to seize’ can be selected by the liquidator.
  • The liquidation limit amount is half that of total borrowed value of the selected token.
  • Liquidated_amount < 0.5 * total_borrowed_value_of_chosen_token
  • Liquidated_value * 1.08 < The_value_of_asset_to_seize (Main Pool,Bonfida Pool,LARIX Pool)
  • Liquidated_value * 1.02 < The_value_of_asset_to_seize (xSOL Pool)

1.2 - Seize the mortgaged assets:

  • Only one type of asset can be seized each time.
  • The_value_asset_to_seize > 1.08 * Liquidated_value (Main Pool,Bonfida Pool,LARIX Pool)
  • The_value_asset_to_seize > 1.02 * Liquidated_value (xSOL Pool)
2. Convert the seized asset
  • Since the seized asset is L-Token, it can be converted back to the corresponding asset.
  • The converting function is automatically completed by Larix front-end.

Tips:

During an extreme market event with high volatile token prices that fluctuate greatly, there will be
  • more clearable accounts on the platform.
  • clearable amounts will be relatively larger
  • an increase in the liquidation rewards
Therefore, it will attract more robots for arbitrage and the liquidations will become more timely.
Last modified 16d ago