Liquidation Discount

To expedite the liquidation of all positions, certain factors are considered to incentivize liquidators to act swiftly. The magnitude of the discount is determined by two factors:

1. Time: The duration since the position became liquidatable. The discount grows at an approximate rate of 1% every 60 seconds. This results in an additional discount of around 10% after 10 minutes have passed. The discount rate of time factor is capped at 30%, or around 30 minutes.

$$\text{TimeDiscount} = \min(0.3, \text{t} / 100)$$

$\text{t}$ = # minutes since position is marked as liquidatable

1. Debt Ratio: How unhealthy the position is. The aim is to provide greater incentives for the liquidation of positions that are riskier of going underwater. Each asset/strategy has its own MinDesiredHealthFactor (MDHF) which is the factor that determines whether the position is underwater and is used to calculate the discount amount using the following formula:

$$\text{HealthDiscount} = \max\left(0,\frac{1 - \text{HF}}{1-\text{MDHF}}\right) \text{, when HF < 1}$$

$\text{HF}$ = Health Factor = 1 / Debt Ratio

$\text{MDHF}$ = Min Desired Health Factor

In summary, by including both the time factor and health factor together. The total liquidation bonus is determined by the following formula

$$\text{LiquidationDiscount} = 1- (1-\text{TimeDiscount}) \cdot (1 - \text{HealthDiscount})$$