Each NFT collection in the Vinci lending protocol has specific values related to their risk, which influences how they are used as collateral to borrow loan assets.
The risk parameters allow to mitigate market risks of the NFT collections supported by the protocol. Each borrowing is guaranteed by a NFT collateral that may be subject to volatility. Sufficient margin and incentives are needed for the position to remain collateralised in adverse market conditions. If the value of the NFT collateral falls bellow a threshold, part of it is liquidated to repay part of the position and keep the ongoing borrowing collateralised.
The table below shows a summary of the latest values.
Loan To Value
Bored Ape Yacht Club
Mutant Ape Yacht Club
The Loan to Value (LTV) ratio defines the maximum amount of loan assets that can be borrowed with a specific NFT collateral. It’s expressed in percentage: at LTV=50%, for every $100 worth of NFT collateral, borrowers will be able to borrow $50 worth of the corresponding loan assets. Once a borrow is taken, the LTV evolves with market conditions.
The Liquidation Threshold is the maximum collateral ratio for the borrowers. It is the percentage at which a position is defined as undercollateralised. For example, a Liquidation threshold of 70% means that if the value of loan assets rises above 70% of the NFT collateral, the position is undercollateralised and could be liquidated.
The delta between the Loan-To-Value and the Liquidation Threshold is a safety cushion for borrowers.
The Liquidation Bonus is also known as liquidation fee for borrowers. It is a discount on the price of assets of the NFT collateral when liquidators purchase it as part of the liquidation of a loan that has passed the liquidation threshold.
For each wallet, these risks parameters enable the calculation of the health factor:
the position may be liquidated to maintain solvency as described in the diagram below.
For each account, these risks parameters enable the calculation of the health factor:
the position may be liquidated to maintain solvency.
Market risks have the most direct impact on the risk parameters:
The liquidity is based on the trading volume on the NFT markets, which is key for the liquidation process. This can be mitigated through the liquidation parameters: the lower the liquidity, the higher the incentives.
The volatility of price can negatively affect the NFT collateral which safeguards the solvency of the protocol and must cover the liabilities. The risk of the NFT collateral falling below the borrowed amounts can be mitigated through the level of coverage required, the Loan-To-Value. It also affects the liquidation process as the margin for liquidators needs to allow for profit.
The market capitalisation represents the size of the NFT market, which is important when it comes to liquidating NFT collateral. This can be mitigated through the liquidation parameters: the smaller the market cap, the higher the incentives.
The overall risk rating is used to calibrate the Reserve Factor with factors ranging from 10% for the less risky NFT assets to 35% for the riskiest.