🛡️Risk Parameters

Sonarix uses a robust set of risk parameters to ensure the protocol remains secure, resilient, and efficient under varying market conditions. These parameters define how much users can borrow, when positions become risky, and how the protocol protects itself from insolvency.

1. Health Factor

The Health Factor is a dynamic indicator that reflects the safety of a user's position. It is calculated based on the ratio between the value of the user's collateral and their outstanding debt.

• A Health Factor above 1 means the position is safe.

• If the Health Factor drops to 1 or below, the account becomes eligible for liquidation.

• The higher the Health Factor, the greater the buffer before liquidation is triggered.

This metric helps users monitor risk in real-time and take preventive action to maintain a safe margin.

2. Loan-to-Value (LTV)

The Loan-to-Value ratio (LTV) determines the maximum borrowing power a user has against a given collateral asset.

• Example: If the LTV for an asset is 70%, a user can borrow up to $70 worth of assets for every $100 of that collateral supplied.

• LTV is asset-specific and reflects the asset’s volatility and liquidity.

LTV helps balance user capital efficiency with protocol safety.

3. Liquidation Threshold

The Liquidation Threshold defines when a collateralized position is considered undercollateralized and eligible for liquidation.

• It represents the maximum debt-to-collateral ratio before a position is at risk.

• For example, a 75% threshold means if your debt rises above 75% of your collateral’s current value, liquidation may occur.

The gap between LTV and Liquidation Threshold creates a safety buffer, giving borrowers time to adjust positions before liquidation.

4. Supply Cap

Sonarix can enforce a Supply Cap on any listed asset to limit how much of it can be supplied to the protocol.

• This protects the platform from overexposure to risky or low-liquidity assets.

• Caps are based on asset market conditions and on-chain liquidity.

Supply Caps are particularly important for experimental or volatile tokens, helping limit protocol risk.

5. Borrow Cap

The Borrow Cap defines the maximum total amount of a specific asset that users can borrow from the platform.

• It’s used to guard against price manipulation, flash loan attacks, and potential insolvency.

• Like supply caps, these are adjustable and depend on the asset’s liquidity and volatility.

Borrow Caps ensure responsible borrowing activity and protect the broader lending ecosystem.