Liquidation

The primary risk to users on Metronome Synth is the risk of liquidation.

Liquidation is when a user’s position is partially or entirely closed, automatically based on rules programmed into the Metronome dApp.

Liquidation occurs when the value of a user’s collateral times the collateral factor of collateral asset(s) drops below the value of a user’s outstanding synthetic mintage.

Users can avoid liquidation by improving the health factor of their loan, which involves either depositing more collateral and/or redeeming some of the outstanding deposited collateral.

Health factors can be viewed at all times on the Metronome Synth dashboard for users to view and manage their risk. The health factor is determined by the amount of collateral vs. the value of a user’s synthetic assets.

Users are unable to mint synthetics when they are in excess of their collateral factor, but they retain privileges to deposit more collateral or redeem outstanding collateral positions in order to improve the health of their position.

Valuation of synthetic assets is determined via Chainlink’s oracle. Chainlink is the leading oracle provider in Web3. Chainlink oracle price updates happen at regular intervals. In addition, if an asset price deviates beyond a set threshold between oracle updates, the Chainlink oracle will update immediately to reflect the new price. See more about Chainlink oracles on their site.

Hard-Coded Pricing and Liquidation Behaviour

Metronome uses hard-coding internal pricing for all msAssets. Each synth is priced equal to its reference asset’s oracle price within Metronome.

When you mint msUSD, msETH, or any msAsset, Metronome values it using the oracle price of its reference asset:

• msUSD is always valued at $1.00

• msETH is always valued at ETH’s current oracle price

• msBTC is always valued at BTC’s current oracle price

Internal pricing ensures that users receive predictable values when interacting with Metronome’s minting and burning functions.

Third-party protocols supporting msAssets (such as Morpho) typically apply the same hard-coded valuation model. This ensures msAssets behave predictably whether used inside Metronome or in integrated markets. However, you should verify each protocol's specific implementation.

This hard-coded methodology protects you from msAsset peg deviations. If msETH trades at $2,800 on a DEX but ETH is valued at $3,000, Metronome still values your minted msETH at $3,000. Temporary depegs, liquidity issues, or black swan events affecting the msAssets external market price cannot trigger liquidation.

However, hard-coded pricing only protects against msAsset peg deviations on the borrow side. It does not protect the collateral side. Your liquidation risk depends on:

1. Reference asset price movements - If you mint msETH and ETH’s oracle price rises, your debt value may increase

2. Collateral price movements - If your collateral (WETH, WBTC, etc.) drops in value, your health factor declines

3. Interest accrual - your debt grows over time

Let's take, for example:

You deposit $10,000 USDC as collateral and mint 0.1 msBTC when BTC is at $100,000. If BTC price rises to $110,000, Metronome values your debt at $11,000. Your health factor will decrease even though you haven't minted more msBTC; you must monitor BTC's price alongside your collateral price to avoid liquidation.

Looping

When we talk about looping strategies, they involve external DEX swaps, which execute at real market prices.

• Mint msAsset at hard-coded internal value

• Swap msAsset on DEX at market price (subject to slippage, etc.)

• Redeposit proceeds as collateral

Metronome guarantees the mint value, but the DEX swap determines what you receive. A depegged msAsset can still weaken your position because you will get less collateral from the swap, even though the mint itself was at full value.

Ultimately, liquidations on Metronome occur when the value of a user’s collateral, adjusted by its collateral factor, falls below the value of the user’s outstanding synthetic mintage. While msUSD maintains a stable $1.00 valuation, msETH and msBTC are priced according to their reference assets' oracle price, meaning changes in ETH or BTC market prices directly affect debt value and liquidation risk.