Key Risk Metrics & Formulas

1. Utilization Ratio (Measures Pool Liquidity Stress)

\text{Utilization Ratio} = \frac{\text{Total Borrows}}{\text{Total Deposits}}

Low yield, excessive idle liquidity

Balanced lending efficiency

Increased withdrawal risks, higher liquidation chances

\text{Liquidations at Risk} = \sum (\text{Borrowers Below Liquidation Threshold} \times \text{Borrow Amount})

OR (if borrower data unavailable)

\text{Liquidation Risk} = \frac{\text{Total Borrows} \times (\text{Utilization Ratio} - \text{Safe Utilization Threshold})}{\text{Collateral Factor}}

\text{VaR} = \text{Total Assets} \times \text{Price Volatility Factor} \times \text{Confidence Level (Z-score)}

Example (95% confidence, stable asset volatility ~5%):

\text{VaR} = \sum (\text{Asset Supply} \times \text{Volatility Factor} \times 1.65)

\text{Borrow Usage} = \frac{\text{Total Borrows}}{\text{Max Borrowing Power}}

\text{Spread} = \text{Borrow APR} - \text{Supply APR}