🛡️Debt Pricing & Risk

Synonym uses a confidence-interval pricing approach to manage cross-chain liquidations during times of volatility.

Confidence Intervals & Asset Looping

Pyth oracles operate with confidence margins, which is a different mechanism implementation when compared to other providers. The confidence margin is subtracted from your deposit values and added do your debt values. When volatility is high there is the chance that liquidation can occur even if you are borrowing the same asset. Why is this done? Synonym is natively cross-chain and therefore needs to account for cross-chain communication and messaging times to ensure that liquidations proceed properly and eliminate the risk of bad debt for the protocol. We always recommend that you keep your collateralization ratio sufficiently high to account for this.

Example:

The formula our protocol has for collateral & debt price considers confidence intervals and price to account for volatility: collateral price = price - 4.24 * confidence debt price = price + 4.24 * confidence E.g. when ETH price is $3240.69911225 and the confidence is $2.62411225, so the prices are:

• collateral price of ETH `3240.69911225 - 4.24 * 2.62411225 = 3229.57287631

• debt price of ETH 3240.69911225 + 4.24 * 2.62411225 = 3251.82534819

During times of high volatility, the confidence spikes, resulting in much higher difference between collateral and debt prices.