COLLATERAL & RESERVES
Orbiter One implements the collateral and reserve mechanisms in accordance with the Compound Protocol. The system is designed to provide users with leverage, thus making capital use more efficient.
The Reserve Factor is the parameter in each Orbiter One Token contract that controls how much of the interest for a given asset can be transferred through the protocol's governance (once this is enabled) to that asset's reserve pool. The reserve pool protects lenders against borrowers’ default. For example, a 20% Reserve Factor means that 20% of the interest that borrowers pay for that asset would be allocated to the Orbiter One reserve pool.
The Reserve Factor, while increasing the safety of the lenders, is reducing their "earned interest" and thus their incentive to game the system. As a market grows, it is important that the reserve pool grow commensurately in order to adequately protect lenders.
Just like in conventional asset-backed lending, in the case of crypto-backed lending collateral is the cryptocurrency asset that a borrower pledges as a guarantee that the loan will be repaid. In other words, your cryptocurrency can serve as collateral for crypto loans.
Orbiter One Tokens have a Collateral Factor that can range between 0%-90%. It represents the proportionate increase in borrowing limit that an account receives by minting the Orbiter One Token. Large or liquid assets tend to have high collateral factors; whereas smaller or more illiquid assets will tend to have lower collateral factors. If an asset has a 0% Collateral Factor, it cannot be used as collateral (or seized in a forced liquidation event). However, the asset can still be borrowed.
In summary, the Collateral Factor is the maximum (in percent) you can borrow against a particular asset.
If the Collateral Factor for USDT is 75%, the maximum amount of USDT you would be able to borrow in other assets (assuming a deposit of USDT $1000) would be $750. If the Reserve Factor, 15% of the interest you pay as a borrower will be allocated to the Orbiter One reserve pool.
CLOSE FACTOR & LIQUIDATION INCENTIVE
The maximum amount of digital assets that can be liquidated at one time
The incentive for liquidators to keep the protocol solvent.
Close Factor & Liquidation Incentive Example
A user’s collateral is worth $2000. Since your collateral health is below 1.0, you will be liquidated. Close factor is 50%. $1000 is repaid by the Liquidator. Your collateral is now worth $1000.
Liquidation incentive is 10%.
$100 is paid out to the Liquidator. Your collateral is now worth $1000.
|Token||Collateral Factor||Reserve Factor||Close Factor||Liquidation Penalty|
Collateral factors, and/or reserve factors, may be adjusted from time to time, depending on factors such as the liquidity for a particular asset.
PROTOCOL SEIZE SHARE
A percentage of liquidated collateral is added to protocol reserves. This is taken out of the liquidation fee and it reduces the risk of insolvency from cascading liquidations.
Protocol Seize Share Example
Your collateral is currently worth $2000. Since your collateral health is below 1.0, you get liquidated. Liquidation incentive is 10%. Protocol Seize Share is 30%. $100 goes towards the Liquidation incentive. $30 goes towards the Protocol Seize Share. The $30 is taken out of the $100 Liquidation incentive. $70 goes to Liquidator $30 goes to Orbiter One treasury