The Relationship Between Risk Parameters and the Market

The risk parameters allow to mitigating market risks of the assets supported by the WePiggy - Harmony protocol.

In the lending market, each loan is guaranteed by collateral that may be subject to volatility. Different assets have different characteristics, leading to their different capabilities as collateral. In order to maintain a healthy market, sufficient margin and appropriate liquidation incentives are required. If the value of the collateral is lower than the value of the current outstanding loan, a part of the collateral will be auctioned to repay part of the loan and keep the ongoing loan collateralized. In this process, the liquidator can obtain a certain liquidation bonus.

Although the WePiggy - Harmony lending protocol hopes that the market can proceed in a free and orderly manner only by optimizing interest rates. But in addition, there are some parameters in the protocol that can more directly control the risks.

Risk Parameters and Related Terms

LTV (Loan-To-Value) Ratio

The LTV ratio of an asset can be set to a value within the range of 0-90% according to the specific situation, which represents the percentage of the value of the collateral that can be converted into the borrow limit when the asset is used as collateral.

Example: The TVL ratio of ONE is 50%. For every 1 ONE worth of collateral, the max you will be able to borrow assets equivalent to 1 x 50% = 0.5 ONE.

Generally, large or liquid assets have high LTV ratio, while small or illiquid assets have low collateral factors. If an asset has a 0% collateral factor, it can’t be used as collateral (or seized in liquidation), though it can still be borrowed.

The WePiggy community can adjust the LTV ratio by initiating governance proposals to respond to the changing market conditions.

Liquidation Threshold

The liquidation threshold is a criterion for evaluating whether an account is allowed to be liquidated, and it is related to the Borrow Limit and the Used Ratio.

The Borrowing Limit is the borrowing capacity, which is equal to the sum of the value of all asset (enabled used as collateral) balances in an account multiplied by their respective LTV ratios.

The Used Ratio is equal to the percentage of the current borrowing value to the borrowing limit. If the used ratio exceeds the liquidation threshold, the account is allowed to be liquidated.

The current liquidation threshold of WePiggy - Harmony lending protocol is 100%.

Liquidation Factor

The percent, ranging from 0% to 100%, of a liquidatable account’s borrow that can be repaid in a single liquidate transaction. If a user has multiple borrowed assets, the liquidation factor applies to any single borrowed asset, not the aggregated value of a user’s outstanding borrowing.

The current liquidation factor of WePiggy - Harmony lending protocol is 50%.

Liquidation Bonus

The liquidation bonus is the additional collateral given to the liquidator in the WePiggy lending protocol.

For example, if the liquidation incentive is 1.1, liquidators receive an extra 10% of the borrowers collateral for every unit they close.

The current liquidation bonus of the WePiggy - Harmony lending protocol is 8%.

Borrow Cap

The borrow cap refers to the maximum amount of a certain asset that can be borrowed.

So far, there is no borrow caps for any asset in WePiggy - Harmony lending markets.

Users can borrow any amount as long as the amount does not exceed the total liquidity of a market.

Deposit Cap

The deposit cap refers to the maximum amount of a certain asset that can be deposited.

Reserve Factor

The reserve factor defines the portion of borrower interest that is converted into reserves.

Reserves are an accounting entry in each pToken contract that represents a portion of historical interest set aside as cash which can be withdrawn or transferred through the protocol’s governance.

Stablecoins are the less risky assets with lower reserve factor while volatile assets hold more risk with a higher factor.

Exchange Rate

The exchange rate here is the exchange rate between the underlying asset and the pToken.

With the accumulation of borrowing interest in every single market, the exchange rate of each pToken will continue to rise.

Risk Parameters of Listed Assets

Each asset of the WePiggy - Harmony lending protocol has set corresponding risk parameters.

The following table shows the risk parameters of all listed assets.

| | | | | | BUSD | 10% | 90% | 100% | 50% | 8% | None | None | | USDC | 10% | 90% | 100% | 50% | 8% | None | None | | USDT | 10% | 90% | 100% | 50% | 8% | None | None | | DAI | 10% | 90% | 100% | 50% | 8% | None | None | | Base Asset | | |

| | | | | | ETH | 20% | 80% | 100% | 50% | 8% | None | None | | WBTC | 20% | 80% | 100% | 50% | 8% | None | None | | Mainstream Asset | | | | | | | | | ONE | 25% | 50% | 100% | 50% | 8% | 114,760,232 | None |