A user can open an Account by providing Collateral. Once an account has collateral, the user can Borrow.
Collateral is used to help ensure debts are repaid.
Collateral assets can be volatile. It is the responsibility of the borrower to ensure their account’s collateral can maintain the value of the debt. If a borrower’s Account Health falls below 1.0, a partial Liquidation should be expected for that account. Since each account is separated, a liquidation for one account will not affect other accounts.
Each collateral has a Max LTV that is used when opening a position. Each new collateral asset added must be approved by governance (see Token Listing Framework). Token values are determined using a multi-source Price Oracle.
The Max LTV is the maximum loan value that each collateral asset can borrow. For example, if an account has $100 value of Luna with a Max LTV of 80% then the account can borrow up to $80 value of other market tokens.