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1. Utilization Ratio (Measures Pool Liquidity Stress)

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

Low utilization (<50%)

Low yield, excessive idle liquidity

Optimal utilization (50-80%)

Balanced lending efficiency

High utilization (>80%)

Increased withdrawal risks, higher liquidation chances

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2. Liquidations at Risk (Measures Potential Liquidation Exposure)


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

OR (if borrower data unavailable)

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

Identifies borrowers at risk of liquidation due to market volatility.

Safe Utilization Threshold is typically set at 70-80%.

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3. Value at Risk (VaR) (Estimates Potential Capital Loss in Extreme Events)


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

Example (95% confidence, stable asset volatility ~5%):
VaR=∑(Asset Supply×Volatility Factor×1.65)\text{VaR} = \sum (\text{Asset Supply} \times \text{Volatility Factor} \times 1.65)

Ensures liquidity reserves align with potential market movements.

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4. Borrow Usage (Measures Borrower Leverage)


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

Higher borrow usage = greater liquidation sensitivity

Used to determine capital efficiency and adjust pool weights dynamically.

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5. Supply vs Borrow APR Spread (Measures Pool Efficiency)


Spread=Borrow APR−Supply APR\text{Spread} = \text{Borrow APR} - \text{Supply APR}
  • NarrowSpread:Narrow Spread: Efficient capital allocation.
  • WideSpread:Wide Spread: Possible liquidity inefficiencies.