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Risk Management Parameters
Each asset in the Galapago Protocol has specific parameters that influences how they can be supplied and borrowed.
- Collateral Factor (CF) or Loan-to-Value (LTV) - What is the maximum amount that can be borrowed? It is represented as a % with numerator equal to Max Amount Borrowed/Value of Supplied Asset Max We will often refer to this value as Collateral Factor and abbreviate as CF.
- Liquidation Threshold (LT) - This represents the point when the asset would start to go through the liquidation process. It is represented as a % with numerator equal to Total Debt/Value of AssetTotal. The difference between the CF and Liquidation Threshold can be considered as the safety cushion for borrowers.
- Liquidation Bonus - The amount of additional collateral that liquidators receive / are discounted for purchasing assets on liquidation. Represented as percentage of the collateral purchased. This provides extra incentives for purchasing through liquidation.
The maximum amount user can borrow is based on the weighted collateral factor--i.e. the value of assets supplied and their corresponding collateral values according to our Asset Risk parameters.
For each wallet the Liquidation Threshold is calculate as the weighted average of the Liquidation Thresholds of the collateral assets and their value