Liquidations

Credit Accounts give the borrower a way to get undercollateralized credit on whitelisted tokens/protocols/strategies.

So how does the protocol ensure over-collaterization while allowing users to take credit?

• When you setup your Credit account, your collateral + borrowed funds value together is the total value of your portfolio.

• Asgard can see which tokens your portfolio consists of and can determine its total value at all times (which are always calculated in the underlying borrowed asset which you opened that Credit Account in)

• Based on the total value of the portfolio, Asgard uses a risk model to continuously assess the quality-value i.e a health factor of the Credit Account.

• If Health Factor goes below < 1, the Credit account is moved to liquidation state where it can be liquidated by any liquidator (including Asgard's emergency liquidator) in the space.

Health Factor:

Health Factor is a numeric representation of your Credit account's health. Formula:

$$H_f(t) = \frac{TV(t)}{borrow(t) + \text{interest}(t) + \text{fee}(t)}$$

where

• $H_f(t)$ -> health factor at time (t),

• $TV(t)$ -> total value of your Credit account portfolio at time (t),

• $borrow(t)$-> borrowed funds value at time (t),

• $interest(t)$-> interest accrued at time (t),

• $fee(t)$ -> Asgard's protocol fee at time (t)

If $H_f(t)$ < 1 then your Credit account is subject to liquidation.

Total Value:

Formula for $TV(t)$:

$$TV(t) = \sum \text{token\_balance}_i(t) * \text{price}_i(t)$$

where

• $\text{token\_balance}_i(t)$ -> token balance of $i$-th asset at time (t),

• $\text{price}_i(t)$ -> price of $i$-th asset at time (t)

Your Credit account is in good health as long as

$$TV(t) > borrow(t) + \text{interest}(t) + \text{fee}(t)$$

More indepth notes coming soon related to asset weights to account for a buffer between Total value and Liabilities of your Credit Account. This would ensure that protocol is sufficiently overcollateralized even in the case of extreme price drops.