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.

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.

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.