Liquidations and Collateral Factors
Synthetic positions are overcollateralized, which means that users have to have more collateral deposited than the amount of synthetics they have generated.
Collateral assets have varying collateral factors, which determines the maximum amount of synthetics that can be generated from a deposit. If/when the value of the synthetic assets falls in value below the required collateral ratio, a partial or full liquidation can occur.
Stablecoins
- USDC: 85%
- DAI: 85%
- FRAX: 83%
- vaUSDC: 82%
- vaFRAX: 80%
ETH
- ETH: 83%
- vaETH: 80%
- sfrxETH: 80%
- vastETH: 78%
- varETH: 75%
- vacbETH: 67%
Others
- WBTC: 80%
Metronome Synth use a risk scoring framework to assess to apply Collateral Ratios to assets.
The different risk scores are intended to provide a holistic risk assessment that covers relevant asset metrics - smart contract complexity, volatility, liquidity and so on. This is a similar methodology to Aave, Compound, Euler and others.
Benchmarks for each score are differentiated between USD-like assets, ETH-like assets, and all others.
Each category of asset adheres to a maximum and minimum Collateral Ratio, and an assets individual risk score determines where its Collateral Ratio falls within the category.
There are five variables scored when assessing each asset. These variables are as follows:
Issuance/Market Cap: The total size of an asset. This can be expressed as an absolute $ amount or a relative market cap ranking.
Open Market Liquidity: The aggregate $ amount of AMM liquidity for an asset.
Lindy Score: The duration of time an asset has been live in production.
Peg Volatility: How much, on average, an asset deviates from its underlying peg (if applicable).
Rehypothecation: The number of times an asset is wrapped or redeployed across smart contracts.
Assets can score from 0-3 on each of these variables, with a higher score corresponding to a higher risk.
The scores are applied to each asset type as follows
Stablecoins
Risk Points | Issuance | Open Market Liquidity | Lindy Score | Peg Volatility | # of Rehypothecation |
+0 | 1bn+ Issuance | >$1bn | >1 year | <0.1% avg. | 0 |
+1 | $251-999M | $250-999M | 3mo - 1 year | <0.1-0.5% avg. | 1 |
+2 | $101-$250M | $101-250M | <3mo | 0.5-2% avg. | 2 |
+3 | <$100M | <$100M | | >2% avg. | 3+ |
ETH
Risk Points | Issuance/Market Cap | Open Market Liquidity | Lindy Score | Peg Volatility | # of Rehypothecation |
|---|---|---|---|---|---|
+0 | >$100M | >$100M | >1 year | <0.5% avg. | 0 |
+1 | $50M-$100M | $50-$100M | 3mo - 1 year | 0.5%-2.5% avg. | 1 |
+2 | $20M-$50M | $20M-$50M | <3mo | 2.5-7.5% avg. | 2 |
+3 | <$20M | <$20M | | >7.5% avg. | 3+ |
Other cryptoassets
Risk Points | Market Cap | Open Market Liquidity | Lindy Score | Peg Volatility | # of Rehypothecation |
|---|---|---|---|---|---|
+0 | Top 25 mcap | >$100M | >1 year | <1% avg. | 0 |
+1 | 25-100 mcap | $50-$100M | 3mo - 1 year | 1%-5% avg. | 1 |
+2 | 100-200 mcap | $20M-$50M | <3mo | 5-10% avg. | 2 |
+3 | 200+ mcap | <$20M | | >10% avg. | 3 |
The Risk Score translates to a Collateral Ratio as follows
Risk Score | Stablecoin | ETH | Other |
|---|---|---|---|
0 | 85% | 83% | 80% |
1 | 83% | 82% | 78% |
2 | 82% | 80% | 75% |
3 | 80% | 78% | 71% |
4 | 78% | 75% | 67% |
5 | 75% | 71% | 60% |
6 | 71% | 67% | 50% |
7+ | 67% | 60% | 50% |
Note: Metronome Synth is in Beta. This system and these rates may change as Synth mature into production launch.
Last modified 15d ago