Concordia Documentation
  • A Modular Adaptive Risk Layer for All of DeFi
  • Platform Spec
    • Portfolios
    • Risk Framework
      • Market Risk
      • Rebalancing (Liquidation)
      • Preventing Bad Debt
    • Composite Operations
    • Pricing Engine
  • Future Roadmap
    • Diversification Risk
    • Concentration Risk
    • Event Risk
  • Developer API
    • JSON API
  • Use cases
    • Margin trading
    • Cross-chain money market
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  1. Platform Spec
  2. Risk Framework

Rebalancing (Liquidation)

Basic Concept of Rebalancing

A portfolio may be forcefully rebalanced if it has insufficient equity. Rebalancing a portfolio involves taking over a portion of its debt and collateral, with the effect of increasing its health.

A portfolio's health is a ratio of its total risk over its total collateral. To calculate total risk, the market value of its liabilities are summed and added to a quantity of risk. In this formulation, "risk" is just the required equity in a a portfolio -- that is, the value of collateral in excess of the value of liabilities.

HealthRatio=Liabilities+RiskCollateralHealthRatio = \frac {Liabilities + Risk} {Collateral}HealthRatio=CollateralLiabilities+Risk​

For a portfolio to be considered "healthy", its total collateral value must be greater than its liabilities added to the portfolio specific amount of risk.

Collateral>Liabilties+RiskCollateral \gt Liabilties + RiskCollateral>Liabilties+Risk

Dynamic Close Rebalancing

The Concordia liquidation mechanism is one of the most vital components ensuring the protocol's health. Creating a successful liquidation mechanism must consider several primary concepts:

  1. Preventing toxic debt

  2. Ensuring adequately capitalized and decentralized liquidators

  3. Other Design Factors.

*Note that neither is mutually exclusive and centered around incentives.

Terms

  • Bounty: Also referred to as Liquidation Fee or Liquidation Spread. The discount is offered on collateral to liquidations to repay parts of the loan.

  • Close-Factor: the maximum amount of debt that can be closed out and repaid in a single liquidation, eventually equal to 1 in the dynamic close outlined below.

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Last updated 1 year ago