Liquidation Parameters

This section pertains to the dynamics of how AZKA manages Collateral and facilitates Liquidations. In AZKA collateral is not isolated, as in all deposited collateral for a user will be used to secure any and all debts of that user. Users can deposit any of the supported collateral types.

A users 'Debt to Collateral Ratio' (DTC) for some user is determined by:

$$\text{Users DTC} = \frac{\text{Sum of all Debts in USD}}{\text{Sum Collateral Value in USD}}$$

All assets listed as collateral have their own unique Liquidation Threshold and Liquidation Penalty on values above the liquidation threshold.

For each wallet/user, the maximum DTC they can have when executing a Murabaha is calculated as the weighted average of the maximum DTC for each collateral asset deposited by the user and its respective value:

$${\small \text{User Max DTC} = \frac{\displaystyle\sum_{i} \left( \text{Collateral (i) in USD} \times \text{max DTC of Collateral (i)} \right)}{\text{Total Collateral Value in USD}}}$$

Each User will also have a unique Liquidation Threshold based on the same approach, whereby the users Liquidation Threshold is a weighted average of the Liquidation Thresholds for each collateral asset deposited by the user and their value:

$${\small \text{User Liquidation Threshold} = \frac{\displaystyle\sum_{i} \left( \text{Collateral (i) in USD} \times \text{Liquidation Threshold (i)} \right)}{\text{Total Collateral Value in USD}}}$$

If the users DTC becomes equal or greater thanthe the users unique Liquidation Threshold, then this will trigger a liquidation event. If a users debt reaches it expiry this will also trigger a liquidation event. Liquidation Events incur a penalty that is payed to the Liquidator.

The WALP (Weighted Average Liquidation Bonus) is given by:

$${\small \text{WALB} = \frac{\displaystyle\sum_{i} \left( \text{Collateral (i) in USD} \times \text{Liquidation Bonus(i)} \right)}{\text{Total Collateral Value in USD}}}$$