A: Like regular yield farming, users are exposed to impermanent loss risk. The impermanent loss risk is amplified by the leverage level that users take.
Additionally, because of the impermanent loss risk + users are taking on leverage, users' positions also have liquidation risk.
A: Homora v2 uses the concept of collateral credit and borrowing credit to determine how much leverage a user can get given the asset(s) supplied as collateral and the asset(s) borrowed. With this mechanism, Homora v2 can set parameters according to the volatility of each asset and set different buffer parameters for different assets to ensure the security of the protocol.
A: Debt Ratio = borrowing credit/collateral credit.
Leveraged positions (more than 1x) are subject to liquidation when Debt Ratio = 100%.
But even when Debt Ratio = 100% (position is at liquidation risk), the position is not yet underwater. Homora V2 has another buffer layer to allow for more price volatility before the position becomes underwater if not yet liquidated.
A: To keep your debt ratio below 100% to prevent putting your position at liquidation risk, you would want to
- 1.Add collateral (Add button in Your Positions page)
- 2.Payback loans (2nd step under Remove button in Your Positions page)
A: We don’t allow users to open positions more than 95% to make sure that position can be open and don't get liquidated immediately. As a way to mitigate risk from users. For Uniswap v3 pools, they are adjusted to be 85% to offer a higher buffer.
A: When Debt Ratio = 100%, the position would be at liquidation risk. At liquidation risk, any liquidator can liquidate your position.
When liquidators liquidate your position, they will repay the debt in exchange for the liquidation bounty.
As a result, you will still have your leveraged position at a smaller position value. Your position value is smaller because:
- 1.A part of your position value (in LP token) is given to the liquidator as a bounty.
- 2.A portion of the debt is being repaid by the liquidator. Amount of debt also contributes to your position value.
A: No, collateral is only considered from the liquidity supplied when opening a farming position plus the amount you borrow. Those two portions contribute as your collateral on Homora V2.