Health Bar
Last updated
Last updated
The Root Finance Health Bar is an innovative tool that provides a graphic summary of a user's lending and borrowing position, helping them intuitively manage their strategies. Remember: Once you start seeing red, it's time to add collateral or pay back! ; )
HOW TO INTERPRET THE HEALTH BAR
First of all, it’s important to note that the Root Health Bar is a visual tool and should not be solely relied upon to manage or analyze your lending and borrowing position.
There are 3 key aspects to understand in order to read the Health Bar correctly:
Borrow Power Used: This indicates how much of your borrowing capacity is available, considering your lending and borrowing position, and is displayed as a percentage. The more loans you take against your collateral, the more Borrow Power you will use. You can borrow up to 100% of your Borrow Power, which means you have reached your Borrow Limit.
Your Borrow Limit: This is the maximum amount in USD that you can borrow against your collateral. Once you reach this limit, you can no longer open new borrowing positions.
Liquidation Threshold: This parameter indicates the point at which you are at risk of liquidation. If your Borrow Power exceeds 100%, you can no longer take out loans, but you are not immediately liquidated. Instead, there is a buffer before reaching the liquidation point. This buffer, or liquidation threshold, varies depending on the assets used as collateral.
SCENARIOS HEALTHY POSITION ALMOST LIQUIDATED
To better understand the Health Bar, it’s essential to know how to calculate two crucial values: your Liquidation Threshold and your Borrow Limit. Both depend on the Loan-to-Value (LTV) ratios of the assets you've supplied as collateral.
The Liquidation Threshold indicates the percentage at which you risk liquidation, and it is always slightly higher than your Borrow Power Used. The buffer that separates the Borrow Power from the Liquidation Threshold is usually 5% more than the maximum LTV of your collateral assets.
For example, if an asset has an LTV of 60%, the Liquidation Threshold will be 65%. The formula to calculate the overall Liquidation Threshold across multiple assets is: Liquidation Threshold = (Sum of (Asset Value_i * (LTV_i + 0.05))) / (Sum of (Asset Value_i * LTV_i)) Where:
Asset Value_i = the value of each asset in USD.
LTV_i = the Loan-to-Value of each asset.
Example Calculation:
HUG: With an LTV of 25% and a Liquidation Threshold of 30%, the Liquidation Threshold on the Health Bar will be 120%.
Your Borrow Limit represents the maximum amount you can borrow based on the value of the assets you’ve supplied as collateral. The Borrow Limit is calculated using the weighted average of the LTV of your supplied assets: Borrow Limit = Sum of (Asset Value_i * LTV_i) / Total Asset Value
Where:
Asset Value_i = the value of each asset in USD.
LTV_i = the Loan-to-Value of each asset.
Total Asset Value = the total value of all supplied collateral.
Once you reach 100% Borrow Power, you have reached your Borrow Limit, meaning no further borrowing is allowed unless additional collateral is supplied. The bar will begin to show red as you approach this limit.
