Liquidation Example

First, a user takes a loan:

• SOL/USD is $100.0

• User Position (debt=100, collateral=2 SOL)

• User LTV is: (100 / 200)*100 = 50% LTV

• User is safe. Liquidation point is 80% LTV.

Then, SOL price drops:

• SOL/USD is $80.0

• User Position (debt=100, collateral=2 SOL)

• User LTV is: (100 / 160)*100 = 62.5% LTV

• User is safe. Liquidation point is 80% LTV.

Then, SOL price drops again:

• SOL/USD is $62.0

• UserPosition (debt=100, collateral=2 SOL)

• User LTV is: (100 / 124)*100 = >80% LTV

• User is liquidated (loses 90% of collateral), because liquidation point is below the user's LTV. In this case, the user loses 90% of their collateral, receives 10% of their assets back, and their debt is fully paid by the USDH Vault.

• After liquidation: User Position (debt=0, collateral=0 SOL)

  • If the user has kept their 100 USDH, they incur a net loss of ~10% (Collateral $124 - Debt $100 - $12.4 assets returned = $11.6 loss).