Liquidation and Liquidity Theoretical

Enter Markets (Use fTokens as collateral)

We require users to specify whether they want to use a lent asset as liquidity for borrowing.

How does liquidity work?

Every open borrow is subject to be liquidated by a third party (that is, anyone) if the underlying value of the collateral locked in relation to the current value of the borrowed assets, falls under a certain level.

The following values are in the user's balances

$$collatUnderlyingMantissa_{n} = \\\frac{\#fTokenSupplied_{n}*exchangeRateMantissa_{n}*collateralFactorMantissa}{mantissa}$$

NOTE: fTokenSupplied_n references fTokens supplied in entered markets.

$$debtUnderlyingMantissa_{n}= \#borrowedTokensInUnderlying_{n}*mantissa_{n}$$

Note the n subscript implies the specific token

totalCollatDollarMantissa

$$totalCollatDollarMantissa =\\\sum_{i=1}^n\frac{collatUnderlyingMantissa_{n}*dollarPerUnderlying_{n}}{underlyingDecimal_{n}}$$

totalDebtDollarMantissa

$$totalDebtDollarMantisssa = \\\sum_{i=1}^{n}\frac{debtUnderlyingMantissa_{n}*dollarPerUnderlying_{n}}{underlyingDecimal_{n}}$$

Zero Liquidity Point

$$\\totalDebtDollarMantissa =totalCollatDollarMantissa$$

Liquidation

Liquidation is a process in which one user repays the debt of the a borrower and essentially purchases some of the borrowers collateral at a discounted rate relative to the amount of repayment. On the Finny protocol, we consider a user as underwater when they hit the liquidation point specified below:

Liquidation Point

$$liquidationPoint =\\(totalDebtDollarMantissa >\\\frac{liquidationThresholdMantissa*totalCollatDollarMantissa}{mantissa})$$

When you hit liquidation point, a user may repay your debt until:

$$totalDebtDollarMantissa <=\\\frac{liquidationThresholdMantissa*totalCollatDollarMantissa}{mantissa}$$

Liquidation/Repayment of a borrower's debt happens on an individual token and not for all assets at once.

Discounted Collateral Purchase/Seizure

Let n = the token that is being borrowed and m = the token that the liquidator wants to seize from the borrower

$$amountRepayDollarMantissa=\\\frac{repayedAmount_{n}*dollarPerUnderlying_{n}*mantissa}{underlyingTokenDecimal_{n}}$$

$$collatSiezedDollarsMantissa_{m}= \\\frac{repaymentAmount_{n}*dollarPerUnderlying_{n}*liquidationDiscountMantissa_{n}}{underlyingTokenDecimal_{n}}$$

$$collatSiezedfTokens_{m} = \\\frac{repaymentAmountDollarsMantissa_{m}*decimal_{m}}{dollarPerUnderlying_{m}*exchangeRateMantissa_{m}}$$

A portion of seized collateral gets sent to the #Reserves and another portion to the liquidator

$$amountfTokensToReserves_{m}= \\\frac{collatSeizedfTokens_{m}*protocolSeizeShare_{m}}{mantissa}$$

$$amountfTokensToLiquidator_{m}=\\collatSeizedfTokens _{m}-amountfTokensToReserves_{m}$$

Liquidation Checks

1. NOTE:

$$repayedAmount_{n} =\\ min[(closeFactorMantissa_{n}*borrowBalanceBorrower_{n}/mantissa)\\,specifiedAmount_{n}]$$

Only the amount repaid will be taken from your balance so rest assured you are not being charged anymore than whats repaid.

2. Borrower hit liquidation point

$$amoutRepayDollarMantissa <=\\(totalDebtDollarMantissa\\-\frac{liquidationThresholdMantissa*totalCollatDollarMantissa}{mantissa})$$

$$collatSiezedfTokens_{n} <=fTokenCollatBalanceBorrower_{n}$$