🍹Risk Parameters

Each asset in Palmy Finance has specific values related to its risk, which influences how it can be deposited and borrowed.

An asset with security concerns around its smart contract cannot be considered for integration into Palmy Finance. Those risks are impossible to control. Similarly, an asset with high-risk exposure to a single counter-party cannot be used as collateral.

The table below illustrates a summary of the latest parameters for each asset.

Symbol	Collateral	Loan To Value	Liquidation Threshold	Liquidation Bonus	Reserve Factor	Price Change to Update Oracle
OAS	Yes	30%	35%	15%	20%	0.5%
WETH	Yes	80%	85%	5%	10%	0.5%
WBTC	Yes	70%	75%	10%	10%	0.5%
USDC	Yes	80%	85%	5%	10%	0.5%

Loan to Value

Loan to Value (LTV) defines the maximum amount of assets that can be borrowed by collateral.

The maximum LTV is calculated as the weighted average of collateral assets multiplied by each LTV:

$Max LTV = \frac{ \sum{Collateral_i \: in \: USD \: \times \: LTV_i}}{Total \: Collateral \: in \: USD \:}$

Liquidation Threshold

Liquidation Threshold is the percentage by which a position is defined as collateral deficient. For instance, Liquidation Threshold of 80% means that if the value rises over 80% of the collateral, the position is collateral deficient. Then the asset might be liquidated.

Liquidation Threshold is calculated as the weighted average of collateral assets mulitiplied by each Liquidation Threshold:

$Liquidation \: Threshold= \frac{ \sum{Collateral_i \: in \: USD \: \times \: Liquidation \: Threshold_i}}{Total \: Collateral \: in \: USD \:}$

Liquidation Bonus

This is a bonus on the asset price paid to a liquidator when the liquidator purchases the collateral asset that has passed Liquidation Threshold.

Health Factor

For each wallet, Health Factor(HF) is calculated using these risks parameters:

$HF = \frac{ \sum{Collateral_i \: in \: USD \: \times \: Liquidation \: Threshold_i}}{Total \: Borrows \: in \: USD}$

When $HF < 1$ the asset may be liquidated to maintain solvency.

Reserve Factor

Reserve Factor allocates a share of the protocol's interests to the collector contract as a reserve for the ecosystem.

It is adjusted based on the risks of the asset. For example, stablecoins are assumed as less risky assets with low reserve factors while volatile assets are assumed to have more risks with higher factors.

Price Discovery

The frequency of price updates results from the liquidation strategy. Palmy Finance uses Chainsight's decentralized oracles for the price feeds at this moment.