Collateral Factor, Reserve Factor, Close Factor, and Liquidation Incentive
- The maximum that can be borrowed on a particular asset e.g. AVAX collateral factor is 40%, if the price of AVAX is $100, the maximum that can be borrowed is $40 in other assets.
- The percentage of the borrower's interest that accrues to BENQI protocol and can be withdrawn through governance e.g. reserve factor of 20% means that 20% of the interest paid on the asset is for the protocol.
- The maximum amount that can be liquidated in a single transaction e.g. 50% close factor means that a maximum of 50% of a liquidatable account's borrow can be repaid in a single liquidate transaction.
- The incentive that is given to liquidators to perform liquidations and keeping the protocol solvent e.g. liquidation incentive of 10% means that liquidators will receive an extra 10% of the borrower's collateral for liquidate transaction.
protocolSeizeShareis 3%. This is the percentage of an account's liquidated collateral that is added to reserves, at the expense of the liquidator. The goal is to mitigate the risk of the protocol going insolvent due to cascading liquidations.
Interest Rate Models
All interest rates in BENQI are determined as a function of a metric known as the utilization rate. The interest rates on BENQI are determined by the utilization rate, which is essentially the percentage of total asset borrowed out against the total asset supplied. A high utilization rate indicates that a lot of borrowing has occurred, while a low ratio indicates the opposite. BENQI's interest rate models dynamically adjusts the interest rates of each asset market depending on the utilization rate. A high ratio would incur higher interest payments from borrowers, and consequently higher interest payments to suppliers, thereby encouraging suppliers to add more assets to the protocol and ensuring healthy levels of available liquidity. BENQI currently uses the Jump Rate Model, which is more efficient at incentivizing liquidity at higher utilization rate, as illustrated in the following chart:
Jump Rate Model