# Risk Parameters

Each asset within the OpenFi has specific values related to their risk, which influences how they are supplied and borrowed within the protocol.

It is crucial for OpenFi community understand the underlying risk of each asset: assess the smart contracts security, understand the risks of centralization and market risks. Onboarded assets, onboard their risks to OpenFi. OpenFi offers new risk mitigation parameters that allow the onboarding of assets highly exposed to these risk factors with limits and isolation mode.

All the assets supported by the OpenFi are added via the OpenFi Governance proposal or via the Asset listing admins selected by the OpenFi Governance.

OpenFi introduces risk parameters to provide a higher level of protection against insolvency.

**Loan-to-Value**

The Loan to Value (”LTV”) ratio defines the maximum amount of assets that can be borrowed with a specific collateral. It is expressed as a percentage (e.g., at LTV=75%, for every 1 TSLA worth of collateral, borrowers will be able to borrow 0.75 TSLA worth of the corresponding currency). Once a borrow occurs, the LTV evolves with market conditions.

**Liquidation Threshold**

The liquidation threshold is the percentage at which a position is defined as undercollateralised. For example, a Liquidation threshold of 80% means that if the value rises above 80% of the collateral, the position is undercollateralised and could be liquidated.

The delta between the LTV and the Liquidation Threshold is a safety mechanism in place for borrowers.

For each wallet, the Liquidation Threshold is calculate as the weighted average of the Liquidation Thresholds of the collateral assets and their value.

**Liquidation Penalty**

The liquidation penalty is a fee rendered on the price of assets of the collateral when liquidators purchase it as part of the liquidation of a loan that has passed the liquidation threshold.

**Liquidation Factor**

The liquidation factor directs a share of the liquidation penalty to a collector contract from the ecosystem treasury.

**Health Factor**

For each wallet, these risks parameters enable the calculation of the health factor:

*Hf​= (∑Collateral i ​in TSLA × LiquidationThreshold i​​ ) / Total Borrows in TSLA*

When Hf​<1 the position may be liquidated to maintain solvency as described in the diagram below.

Risk Parameters Safeguard Solvency


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