Loan-to-value and liquidation

Not live yet

Kadia Lending v1 is in development, unaudited and not on mainnet, and not live yet on any network. This page describes the design that will launch. The hosted lending app has no markets connected. Every figure marked as a launch parameter is illustrative until it’s set before deployment, and can change.

Source: kadia-lending at commit f9c0bdd (f9c0bdd766155fa8afa24e29e0e0cc13508e2d05): docs/specs/economic-model-v1.md (EM v1), docs/specs/lending-design.md (LD), and the prototype’s docs/specs/economic-model.md (EM) for what v1 keeps.

Loan-to-value

Loan-to-value (LTV) is what you owe divided by what your collateral is worth, both valued in the borrowed asset at the price feeds’ prices (EM v1 §3.4). Each collateral in each pool has two levels:

• Maximum LTV: the highest you can borrow or remove collateral to.
• Liquidation threshold: where liquidation becomes possible.

Collateral	Maximum LTV	Liquidation threshold
USE, in the ERG pool and the rs-coin pools	60%	70%
ERG (launch parameter)	70%	80%
Kadia DEX ERG/USE LP, in the LP market (launch parameter)	80%	85%
Every other collateral	set before launch	set before launch

• USE collateral starts lower, on both networks. On testnet, tUSE is counted at $1, so a fall below $1 isn’t seen; on mainnet, a fast fall can still outrun liquidation. USE collateral also has a debt ceiling of at most 5% of its pool’s deposit cap. These limits rise only by a release, and only once a USE price feed has existed and USE has had 90 days on Kadia DEX’s ERG/USE market with at least 100,000 USE on each side. Time alone doesn’t raise them, and on testnet, where tUSE is counted at $1, they don’t rise at all (EM v1 §3.5, D53).
• Your LTV rises when your collateral’s price falls, the borrowed asset’s price rises, or interest adds to your debt.
• It falls when you repay, add collateral, or the prices move the other way.
• The liquidation price is the price at which your LTV reaches the threshold. The app shows it, along with how far the price can move before then.

LP collateral moves more slowly than ERG. An ERG/USE LP token holds both assets, so its value moves with roughly the square root of a change in the ERG price (EM §10.3). The app’s price-drop simulator accounts for this.

New loans use the cautious price

When you borrow, or remove collateral from a loan with debt, a Kadia oracle feed’s price is checked against its recent history. Your collateral is valued at its lowest confirmed price of roughly the last 30 to 60 blocks, and the borrowed asset at its highest. The current price is always included, so the guard is never better for you than the current price. A brief spike can’t be used to borrow more (EM v1 §3.7, D57).

Liquidation

• Who: anyone, once your LTV reaches the threshold (EM §9.4). It doesn’t depend on any particular bot.
• Which price: the latest confirmed price on an up-to-date feed. A large move the oracle is still holding for confirmation isn’t used (EM v1 §9.3).
• Partial first. A liquidation repays just enough of your debt to bring the loan back to a safer restore LTV, set per collateral (EM v1 §4.3).
• The liquidator’s pay: a bonus taken from your collateral. It’s smallest at the threshold and grows the further past it a loan is. The range is set per collateral (launch parameters). An LP liquidator’s bonus is higher, because they receive LP tokens and need time to turn them back into ERG and USE and sell those (EM §10.2). SigUSD collateral’s bonus starts at no less than 5% (EM v1 §3.3).
• Close. If a partial liquidation can’t restore the loan, the whole loan is closed. The liquidator takes the debt’s worth of collateral plus the bonus, and what’s left comes back to you in the same transaction (EM v1 §9.1). Two exceptions:
  • if the collateral doesn’t cover the debt, the liquidator takes it all, and the shortfall is bad debt: the reserve absorbs it first, then lenders (EM §7);
  • a remainder too small to be sent on its own goes to the liquidator.
• Smaller steps. Liquidators may repay in chunks at the same bonus. Every chunk must reduce your debt (EM v1 §9.2).

Pre-liquidation (optional)

When you open a loan, you can choose softer early terms (EM §9.5). They can’t be changed later.

• From an LTV you pick, below the threshold, anyone may repay a fixed share of your debt for a bonus smaller than a liquidation’s.
• It’s a gentler step, so a falling price costs you less than a full liquidation would.
• Once the loan reaches the threshold, normal liquidation applies.
• It follows the same price rules as a liquidation.

When a price feed is old or flagged

New loans pause while a feed is out of date or shows a warning, and liquidations wait while it’s out of date. Repaying and adding collateral always work. See The oracle and stale prices.