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Liquidation Protection System

Loopify Finance implements health factor monitoring and emergency deleveraging to protect leveraged positions from liquidation.

Health Factor Calculation​

The health factor determines position safety:

// Health Factor = (Collateral Value × Liquidation Threshold) / Debt Value
function getHealthFactor(address user) public view returns (uint256) {
    if (pos.debtValue == 0) return type(uint256).max;
    return (pos.collateralValue * LIQUIDATION_THRESHOLD * 1e18) / (pos.debtValue * 10000);
}

Health Factor Zones:

  • Safe: > 2.0 (Healthy position)
  • Caution: 1.8 - 2.0 (Monitor closely)
  • Warning: 1.3 - 1.8 (Consider adding collateral)
  • Critical: 1.01 - 1.3 (High liquidation risk)
  • Emergency: < 1.01 (Automatic deleveraging triggered)

Portfolio Monitoring System​

The portfolio manager continuously monitors all user positions using real-time data feeds:

Monitoring Infrastructure:

  • 24/7 Health Factor Tracking: Continuous calculation across all positions
  • Price Feed Integration: Multiple oracle sources for accurate valuations
  • Gas-Optimized Checks: Efficient monitoring without excessive network costs
  • Multi-Position Management: Simultaneous tracking of leveraged strategies
  • Live Notifications: Real-time alerts via Notifi Network integration for position changes

Competitive Advantage: Unlike competitors who charge 0.25%+ fees for safety measures and collateral adjustments, Loopify provides zero-cost protection mechanisms. Users benefit from automated position management without additional fees beyond standard transaction costs.

Emergency Protection​

When health factor drops below 1.01, the system automatically:

  1. Triggers Flash Loan: Borrows assets to repay part of user's debt
  2. Deleverages Position: Reduces debt by 30% to improve health factor
  3. Withdraws Collateral: Uses collateral to repay flash loan
  4. Updates Position: Records new collateral/debt values

User Controls​

Manual Protection:

function protectPosition() external {
    // Users can manually trigger protection when health factor < 1.1
}

function emergencyExit() external {
    // Close entire position and withdraw all funds
}

System Limitations​

  • Response Time: 1-2 block confirmation (12-15 seconds)
  • Success Rate: Target 85-90% (realistic protection rates)
  • Gas Costs: 150k-300k gas per protection action
  • No Predictions: System reacts to current conditions only
  • Development Phase: Currently in testnet

The system provides essential liquidation protection without AI/ML predictions or guaranteed outcomes.