Sumer.Money
  • Sumer.Money: The Most Capital Efficient Blockchain Liquidity Infrastructure
  • KEY PREMISE
    • The Future is Multichain
    • Sumer - the most capital efficient Liquidity Infrastructure
      • Sumer's Capital Efficient unified liquidity pool
      • Sumer Synthetic Assets as Money Multipliers
  • SUMER POINTS PROGRAM - A Call for the Tribe
    • Introduction
    • Points Based Program
    • NFT Based Program
    • Sumer Partner Program — Meter Points
    • FAQs
  • Sumer Lending and Borrowing Market
    • Introduction
    • Asset Group Classification
    • Collateral Rate by Asset Group
      • Understanding the applicable mint limit
    • Deposit Native Assets
    • Mint SuTokens
    • Borrow Native Assets
    • Repay SuToken Liability
    • Repay Borrowed Native Assets
    • ​Interest Rate Model
      • Standard Model
      • Jump (Kink) Model
    • Redeem SuTokens
    • Liquidation Mechanism
    • Risk Management
  • Tokenomics
    • Token Distribution
  • Definitions
  • Frequently Asked Questions
    • Sumer Protocol
    • Deposit Market
    • Minting Synthetic Assets (SuTokens)
    • Borrowing Market
    • Liquidation
  • TUTORIALS
    • How to Deposit assets
    • How to Collateralize Tokens
    • How to Mint SuTokens
    • How to Borrow assets
    • How to Stake Sumer LP tokens into Liquidity Program
    • How to stake Sumer Tokens into veSumer Program
  • SECURITY
    • Audits
  • PROTOCOL PARAMETERS
    • SUMER Money Market
  • DEVELOPERS
    • Smart Contracts
    • sdr Tokens
    • Price Feeds
      • RedStone Price Feeds on Zklink Nova
      • Pyth Price Feeds on Meter
      • Chainlink Price Feeds on Arbitrum
      • Chainlink Price Feeds on Base
  • GOVERNANCE
    • Introduction
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  • Health Factor
  • Liquidation Threshold
  • Liquidation
  • Liquidation Incentive

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  1. Sumer Lending and Borrowing Market

Liquidation Mechanism

The liquidation module is a critical component required as a prevention mechanism for bad debts, by paying off loans that have gone beyond its required Collateralization ratio.

Health Factor

The health factor represents the safety of your deposited assets against the borrowed assets/ minted SuTokens and its underlying value. The higher the value is, the safer the state of your funds are against a liquidation scenario.

If the health factor reaches 1, liquidation of your deposits will be triggered. A Health Factor below 1 can get liquidated.

The health factor depends on the liquidation threshold of your collateral against the value of your borrowed funds.

Liquidation Threshold

In a compound design,

Liquidation Threshold = Collateral Rate or LTV

Liquidation

Liquidation will be triggered when;

Value of Borrowed Asset or Minted SuTokens x LTV/ Collateral Rate
 > 
 Value of Supplied Collateral 

This is either because the collateral decreases in value or the borrowed loan/ minted SuToken increases in value against each other.

When a liquidation event is triggered, the following events take place:

  • The liquidation module will calculate the amount, up to the given asset's Close Factor, required to bring the loan back to a healthy level (i.e. as per the stipulated Collateral Factor)

  • A corresponding amount will then be taken from the collateral, calculated at the collateral’s current market price minus a liquidation discount, netted off by a liquidation fee.

  • After the said loan amount is repaid, the loan account will be considered a healthy account (within the Collateral Ratio), and will be taken off the liquidation module

Anyone can participate as a liquidator for Sumer, as long as they are in possession of the corresponding collateral assets.

IMPORTANT NOTES:

  1. Within Sumer, 1 suUSD = 1 USD. Though suUSD mint from stables (USDC, USDT, DAI) have high collateral rate, aggressive minting can get liquidated if price of collateral drops. This is specially applicable in adverse market conditions (e.g. when USDC lost peg)

  2. Within Sumer, 1 suETH = 1 ETH. By corollary, Minting suETH with ETH collateral cannot get liquidated

Liquidation Incentive

The liquidation discount acts as an incentive for arbitrageurs to step in and reduce the borrower’s exposure, thereby reducing the risk of loan default in the process.

The amount of liquidation discount (or penalty for borrowers) depends on the asset used as collateral.

This liquidation process will be facilitated using the Chainlink price feed (i.e. “oracle”) or supported Oracle service on networks where Sumer is deployed.

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Last updated 9 months ago

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