Why collateral value is not the same as borrowing capacity
MARKET SYSTEMS · COURSE 001
When Does Collateral Get Liquidated?
Start with one collateralized loan, then let debt, time, and price inputs push the account toward liquidation. Follow who absorbs the remaining loss.
COURSE EXAMPLEWhen does collateral get liquidated?
Put collateral, debt, interest, oracle readings, and a liquidator on one state ledger. Follow how one price input travels through the system.
PARTICIPANTS
- BBorrower: locks TOKEN to receive credits
- PPool: supplies liquidity and records debt
- KKeeper: repays debt when risk crosses the line
- OOracle: supplies the risk price
COURSE OUTLINE
One question per lesson
The lessons are ordered so that each one uses concepts introduced earlier.
- 01COLLATERAL · LTV · CAPACITY13 MIN
Why Can’t 100 TOKEN Borrow Its Full Value?
KEY QUESTIONHow can an overcollateralized loan still create bad debt?
Put collateral value, LTV, and pool liquidity on one ledger and find a safe borrowing boundary.
→ - 02INTEREST · HEALTH FACTOR13 MIN
Why Can Debt Grow by Itself?
KEY QUESTIONCan a loan be liquidated while price stays flat and the user does nothing?
Advance accrual periods and watch interest increase debt, lower health, and change borrowing room.
→ - 03PRICE SHOCK · LIQUIDATION15 MIN
At What Price Can a Liquidator Take Over?
KEY QUESTIONWhy reward a liquidator who takes someone’s collateral?
Drop collateral price, calculate the liquidation line, and watch a keeper repay debt for incentivized collateral.
→ - 04ORACLE · STALE PRICE · BAD DEBT14 MIN
Who Gets Pushed into Bad Debt by a Wrong Price?
KEY QUESTIONThe market crashed, but the oracle has not updated. Why does the account still look safe?
Separate market and oracle prices to see stale data delay liquidation and leave debt after collateral is exhausted.
→
Questions covered in this course
How interest lowers health even when price is flat
How liquidation price, bonus, and asset flow are calculated
Why stale oracle data delays risk—and can create bad debt