Risk Engine
✦ Key Takeaways
- Tiered LTV — 50%, 65%, or 80% based on market liquidity and maturity
- Conservative oracle — min(spot, TWAP) protects against manipulation
- Early-closure decay — LTV reduces as markets approach resolution
- Staleness checks — blocks borrowing/withdrawing on outdated price data
- Liquidity thresholds — illiquid markets can't be used as collateral
The 3 Questions
When you borrow in Varla, three things determine your risk:
| # | Question | Answer |
|---|---|---|
| 1 | How much can I borrow? | LTV Tiers — 50%, 65%, or 80% depending on collateral risk |
| 2 | When can I be liquidated? | Health Factor — when HF drops below 1.0 |
| 3 | What if oracle data is missing? | Oracles — that collateral contributes $0 borrow power |
⚠ The one rule that matters
If your health factor drops below 1.0, you can be liquidated. Everything else flows from this.
How Varla Protects Lenders
| Protection | What it does |
|---|---|
| Tiered LTV | Limits borrow power based on collateral risk — riskier positions get lower LTV |
| Conservative pricing | Uses min(spot, TWAP) — prevents inflated collateral valuations |
| Early-closure decay | Reduces LTV as markets approach resolution — forces borrowers to repay |
| Liquidation bonus | 5–15% incentive for liquidators to clear bad positions quickly |
| Reserve fund | 10% of interest as first-loss coverage before socializing bad debt |
What Borrowers Should Watch
Three things to monitor as an active borrower:
| Monitor | Why | Target |
|---|---|---|
| Health factor | Drops below 1.0 = liquidation | Stay above 1.2, ideally above 1.5 |
| Time to resolution | Early-closure rules kick in 7 days before | Repay or withdraw before the window |
| Oracle status | Stale price = $0 borrow power for that position | Diversify collateral across markets |
Risk Stack Overview
Risk engine layers
Layer 1: Oracle System
├── Spot price from orderbook
├── TWAP (time-weighted average price)
├── Final price = min(spot, TWAP)
└── Staleness check (15min default)
Layer 2: Risk Tiers
├── Conservative: 80% LTV (high liquidity)
├── Moderate: 65% LTV (standard)
└── Risk: 50% LTV (lower liquidity)
Layer 3: Early-Closure Rules
├── LTV decays as resolution approaches
├── Forces borrowers to repay before expiry
└── Prevents resolution-risk exposure
Layer 4: Health Factor
├── HF = weighted collateral / total debt
├── HF < 1.0 → liquidatable
└── Liquidation bonus scales with HF severityDeep Dives
Health Factor
The single number that decides liquidation — formula, HF zones, and worked examples.
LTV & Thresholds
How LTV tiers work, liquidation thresholds, and the safety buffer between them.
Market Resolution
Early-closure decay, resolution handling, and what happens when markets expire.
Oracle System
Price feeds, TWAP mechanics, staleness checks, and manipulation resistance.