Apricot EDU: Explaining Apricot Assist & Borrow Limits
This is the second installment of Apricot Finance’s EDU series. In this article, we’ll explain how Apricot Assist works in relation to a user’s borrow limit, as well as when it is triggered during times of market volatility.
- Sally has $100 SOL deposited in her Apricot account.
- To calculate Sally’s maximum borrow limit — she first must decide which LP pair she wants to farm at maximum portfolio leverage.
- Sally decides she exercise her entire borrow limit and farm ORCA-USDC LP — receiving a variable interest rate of 125.07%
- Her portfolio leverage will be maximized to 2.5x
In this transaction, Sally will borrow roughly the same amount of each LP asset, $124.86 ORCA and $126.34 USDC and deposit it to obtain $249.95 ORCA-USDC LP token. Sally’s portfolio leverage will now be maximized to 2.49x.
It’s important to notice that Sally’s Borrow Limit Used is now 89.2%, once an Apricot user’s Borrow Limit exceeds 90% — they are no longer allowed to borrow or withdraw their funds. If the user wishes to borrow more assets or withdraw their funds, the user must either add more collateral to their deposits or redeem a portion of their LP tokens to reduce their Borrow Limit Used below 90%.
As featured in our previous article regarding opening a long farming position strategy, we’re going to manually calculate Sally’s Max Borrow Limit and Borrow Limit Used.
Notice above the current deposits which factor into calculating Sally’s Max Borrow Limit — ORCA-USDC LP and SOL.
The Loan-To-Value Ratios (LTV) of the assets in Sally’s deposits are both .80 or 80% — All LP tokens on Apricot have an LTV ratio of .80, except APT-USDC with an LTV of .40.
Calculating Max Borrow Limit & Borrow Limit Used:
Max Borrow Limit = Total Deposit Value x LTV
= (249.95 + $100.32) x .80
= (350.27) x .80
Borrow Limit Used = Total Borrow Value / Max Borrow Limit
= 249.95 / 280.216
Now that we understand the values behind our Max Borrow Limit and Borrow Limit Used, we’ll now explain what Apricot Assist is and how it protects your collateral from being fully liquidated.
Apricot Assist is a free-of-charge configurable risk management tool designed to auto-deleverage a user’s position during times of market volatility — a first of its kind in Decentralized Finance.
Assist deleverages a user’s position by redeeming some of the user’s LP token deposit for its native assets, and repays a portion of the borrow value to reduce their Borrow Limit Used to the configurable target setting.
As you can see from the screenshot above, there are two configurable parameters for Assist:
- Trigger Level — The value of the Borrow Limit Used Percentage which triggers Assists redemption and repayment sequence
- Target Level — The value of Borrow Limit Used Percentage falls to after LP token redemption and loan repayment
In our example above, you can see if Sally enables Assist and her deposits fall in value by 37%, her Borrow Limit Used will reach 95% — Her personally configured Assist Trigger Level.
When Assist is triggered, the program will redeem $47.04 of Orca-USDC LP token and repay an equal amount of each assets’ borrow amount — Thus reducing Sally’s Borrow Limit Used back down to her target amount of 90%.
- The greater the difference between Trigger Level and Target Level, the more LP tokens Apricot Assist will help you sell/redeem when it is triggered.
- It is recommended to keep the difference between Trigger Level and Target level small (e.g. <5%), especially if you have large positions that can create non-trivial slippage when deleveraging.
- It should also be noted that Apricot Assist has a per-transaction size limit of $5K USD.
- If Apricot Assist needs to sell more than $5K of your non-stable/stable tokens in order to bring your Borrow Limit Used below Assist Trigger Level, it will do so over multiple transactions separated by at least 20s.