Interpretation
Last updated
Last updated
DeltaPrime
Launch App| Borrowing Power, Collateral, Borrowed value | Asset Health |
|---|---|
5x, $100, $250 | 50% |
5x, $120, $250 | 58.3% |
3x, $100, $101 | 66.3% |
Let's have a look at the first and last row in the Asset Health table above:
Having 5x borrowing power, with $100 in collateral, means you could theoretically borrow up to $500 before getting liquidated. If you would borrow $250, exactly half of that, your health would instead be 50%. If you use the same $100 as collateral for an asset with 3x borrowing power, you would be able to borrow up to a maximum of $300. If you borrow $101, a little over one-third of your max borrowed amount, your health meter will drop to 66.3%, a little under two-third of your health.
Combining assets, the token price, and differences in borrowing power are taken into account, yet the basic idea stays the same: Your health meter represents the percentage of the value that you can borrow based on your collateral. If you have 60% health, that means that you have borrowed a total value of 40% of what you can borrow with your current collateral. A health meter of 0% means liquidation.
Of course, your collateral value changes, as this is based on your account value minus your total borrowed value. Through investments and trades, your account value might go up and down. If your investments make you a $20 profit in the first scenario, this will automatically be counted towards your collateral, increasing this to $120. This would increase your Asset health to 58.3%.
If you instead make unprofitable investments, dropping your total account value by $50, your collateral would be worth $50 with the same $250 borrowed value. That hits the 5x bringing your health to 0%. At this point positions in your Prime Account will be partially liquidated to automatically repay part of your borrowed funds.
An additional parameter that affects the predictability of the health ratio is the borrowing power of the tokens you are holding or borrowing. Depositing a 1x token and borrowing a 5x token, means you can borrow up to 3x the value of your collateral before hitting 0%. Depositing a 5x token and borrowing a 1x token means you can borrow up to 1.67x the value before hitting 0%. The reason for this is that borrowing an asset integrates that asset as part of your collateral, changing your total asset allocation in the process, and thus impacting your overall borrowing power. One way to avoid this is by swapping your borrowed tokens into the 5x token, improving the health meter with every swap. If you were to do this consistently, you would eventually have 5x borrowing power on your portfolio.
There are three main ways to predict your health based on certain transactions:
Long term it's best to understand how it works. If you are more of a numbers guy/gal, read and understand the Calculations section, if you instead prefer more laymen's terms, read the above Interpretation section. For any question, you can always join us on Discord.
Trying to create a balanced portfolio for the Medium term? Awesome. You will find a lot of value in the Health Playground of DeltaPrime. Here you can play around with token, price, borrowing power and allocation, to see how it affects your health meter.
Want to know how in the Short term one transaction will impact your health meter? With every transaction you can perform that may affect your health meter, a smaller version of it will appear in the bottom-left corner. This shows you what your health meter will look like when you push that button. In doing so, you'll never be surprised by a transaction changing your health!
The health meter is an indicator; A tool that helps you evaluate your current portfolio. That being said, having low health does not directly translate into high liquidation risk. A portfolio with 2% health, where your collateral is the same token as the borrowed tokens, has no liquidation risk. The liquidation risk severely increases if you trade your assets for tokens with low correlation to the borrowed tokens.
For this reason, managing your portfolio as a borrower is paramount. There are different strategies explained in Investing strategies, but the full possibilities are endless. To get the most out of your risk management, make sure to collaborate and engage with the community of DeltaPrime.
