Debt Collateral Ratio
Learn more about how Dough displays risk parameters on DeFi protocols
Last updated
Learn more about how Dough displays risk parameters on DeFi protocols
Last updated
Your position may look different on Dough, but Dough doesn't modify or change the underling protocol.
Dough GUI interacts with various lending protocols each lending protocol uses different math to show risk to the user. On the Dough Health Factor we show users risk in two ways:
Max Debt to Collateral Ratio
Health Factor used by AAVE
Debt to Collateral is a simple formula. To find the debt to collateral ratio you divide the value of the outstanding debt to the value of the collateral.
Most protocols use Collateral Factor (or another term) which describes how much a user can borrow against their deposit. These parameters are usually determined by the asset time. For example: If Bitcoin has a Collateral Factor of 0.5 then a user can borrow up to 50% of its value. Collateral Factor is sometimes called Loan to Value on other platforms and services.
The percentage at which liquidations occur is determined by the various collateral factors of the underlying assets. The average collateral factor of all the supplied assets becomes the Maximum Debt to Collateral Ratio. Hitting the Maximum Debt to Collateral Ratio in any protocol will trigger the liquidation process.
Each protocol has their own liquidations process please refer to the specific protocol to understand its unique liquidation process.
In the example above only one collateral was used (wBTC) and its collateral factor is 60% Therefore, when the position hits 60% debt to collateral ratio it will reach liquidation.
If there were multiple assets held then, the Maximum Debt is calculated by the collateral factor of the multiple assets based on weight.
For example: A Compound position that is half USDC and half wBTC has a Maximum Debt Ratio of 67%.
For example: A Compound position is 75% USDC and 25% wBTC has a Maximum Debt Ratio of 71%
The price and position in which a user is liquidated is the same. Reaching the Borrow Limit on Compound, is functionally the same as hitting the Maximum Debt to Collateral Ratio on Dough. You can check this by calculating them together:
