🔥Risk Management
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Risk Parameters
Asset Risk Definitions
Each asset within the Synonym Protocol has specific values related to their risk, which influences how they are supplied and borrowed within the protocol. These risk parameters were produced collectively with Gauntlet and closely follow their recommendations.
Liquidation Bonus
The liquidation bonus is a fee rendered on the price of assets of the collateral when liquidators purchase it as part of the liquidation of a loan that has passed the liquidation threshold.
Minimum Health Factor
To avoid binary liquidation environments where positions are either liquidated in full or not liquidated at all, a Minimum Health Factor is introduced to guide liquidators. The Minimum Health factor avoids positions being liquidated beyond a safe and reasonable threshold, facilitating partial liquidations.
As an example, if a position has reached a Collateralization Ratio of 100 and a liquidation is triggered, the liquidator is permitted to repay debt and liquidate collateral only up to the Minimum Health Factor or Minimum Collateralization Ratio of the account. This prevents over liquidation and optimizes for protocol safety and user experience.
Supply Factor
The Supply Factor represents the maximum borrowing power of a specific collateral.
Borrow Factor
The Borrow Factor represents the maximum ratio at which an asset can be borrowed. As an example, if the Supply Factor of Asset A is 70% and the Borrow Factor of Asset B is 80% then the maximum amount of Asset B that can be borrowed is 70 x 80 = 56% of Asset A.
Supply Cap
This is the maximum amount of an asset that can be supplied on the protocol. This factor is set per asset, per chain with an exception of USDC where the limit is set globally for the protocol.
Borrow Cap
This is the maximum amount of an asset that can be borrowed on the protocol. This factor is set per asset, per chain with an exception of USDC where the limit is set globally for the protocol. Reserve Factor The Reserve Factor is the portion of interest that is set aside as reserves rather than paid out to lenders. The global receive factor is 60% and is allocated in the following manner:
Liquidations
A liquidation is a process that occurs when a borrower's collateralization ratio drops, due to their collateral value not properly covering their loan/debt value. This might happen when the collateral decreases in value or the borrowed debt increases in value against each other. This collateral vs loan value ratio is shown by the number, visible on the “Portfolio” page in the top right. Liquidation is triggered at Collateralization Ratio of 100.
The liquidation bonus is a fee rendered on the price of assets of the collateral when liquidators purchase it as part of the liquidation of a loan that has passed the liquidation threshold. To see the exact liquidation bonuses on asset look here.
Oracles
Both Chainlink and Pyth price feeds can used as a source of truth for asset pricing. One over another is used depending on the market conditions. Price feeds for the relevant listed assets are itemized below:
Pull Oracle Infrastructure
Considering that Pyth uses a pull-oracle approach, protocols are required to pull asset prices from Pythnet at a self-determined frequency. This allows for flexibility in latency as protocols require different latency considerations for optimal performance. To ensure security redundancy, Synonym utilizes the industry leading automation provider Gelato for price update automation.
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