Liquidation Risk

Lov-Strategy users should be advised that they may suffer loss of some or all of their funds in event of a full liquidation of the underlying vault debt position.

Typically, liquidations are triggered when a Borrower’s loan health factor falls below the prescribed limit for a given pair on the lending platform. Each Lending Protocol will define a specific liquidation threshold LTV for Borrowers so that sufficient margin can be maintained. Liquidation risk for non-correlated assets e.g. WETH/DAI is higher than for pegged assets such as DAI/USDC and stETH/WETH.

Origami Protocol does not reflect any liquidation LTV for users to actively manage or monitor for a given lov-Strategy vault. The vault position is managed in the aggregate via Origami’s smart rebalancing mechanisms which will make predictable adjustments in accordance with the deployed parameters.

While the lov-Strategy vault smart contract will try to maintain leverage ratios within prescribed limits, there are technical limitations to the Rebalance mechanism such that a partial deleveraging may not be feasible, or even possible under certain scenarios.

In most situations, the lov-Strategy vault will partially unwind or de-lever automatically to reduce risk of full liquidation. However, there still exists an inherent risk of liquidations due to events beyond the control of Origami Protocol including 3rd party integrations, novel exploits, oracle failures, de-pegging, smart contract risk, or other types of black swan events.

The lov-Strategy vault may also suffer a loss if the underlying yield-bearing token protocol becomes under-collateralised due to loss of funds or another catastrophic event that triggers a reduction in the reserves e.g. slashing for Lido validators. Such events cannot be predicted or anticipated and are beyond the control of Origami Protocol.

In event of a liquidation, the lov-Strategy vault will automatically unwind in a manner to prioritise repayment of its debt and satisfy its liability to the external liquidity provider. Any residual lov-Strategy vault reserve assets can then be redeemed by the lov-Token holders for that vault.