Loading...
;
if (error) return
USDFC App
{trove && (
Your Trove
Collateral: {trove.collateral.toString()} FIL
Debt: {trove.debt.toString()} USDFC
Collateral Ratio: {trove.collateralRatio.toString()}%
)}
{price && (
Current Price
FIL/USD: ${price.toString()}
)}
{/* Add UI components for interacting with the protocol */}
);
}
Copy
import { EthersSfStablecoin } from "@secured-finance/stablecoin-lib-ethers";
import { Decimal } from "@secured-finance/stablecoin-lib-base";
import { ethers } from "ethers";
async function mintUSDFC() {
// Connect to the protocol
const provider = new ethers.providers.Web3Provider(window.ethereum);
await provider.send("eth_requestAccounts", []);
const signer = provider.getSigner();
const usdfc = await EthersSfStablecoin.connect(signer);
// Get the current price
const price = await usdfc.getPrice();
console.log("Current FIL/USD price:", price.toString());
// Calculate a safe collateral ratio (e.g., 200%)
const collateralAmount = Decimal.from(5); // 5 FIL
const maxBorrowAmount = collateralAmount.mul(price).div(Decimal.from(2)); // 200% collateral ratio
console.log("Depositing", collateralAmount.toString(), "FIL as collateral");
console.log("Borrowing", maxBorrowAmount.toString(), "USDFC");
// Open a Trove
try {
const tx = await usdfc.openTrove({
collateral: collateralAmount,
borrowDebtToken: maxBorrowAmount
});
console.log("Trove opened successfully:", tx);
// Get the updated Trove
const trove = await usdfc.getTrove();
console.log("Your Trove:", trove);
return trove;
} catch (error) {
console.error("Error opening Trove:", error);
throw error;
}
}
Copy
import { EthersSfStablecoin } from "@secured-finance/stablecoin-lib-ethers";
import { Decimal } from "@secured-finance/stablecoin-lib-base";
import { ethers } from "ethers";
async function monitorLiquidationRisk() {
// Connect to the protocol
const provider = new ethers.providers.Web3Provider(window.ethereum);
await provider.send("eth_requestAccounts", []);
const signer = provider.getSigner();
const usdfc = await EthersSfStablecoin.connect(signer);
// Get the user's Trove
const trove = await usdfc.getTrove();
if (!trove.status === "open") {
console.log("No open Trove found");
return null;
}
// Get the current price
const price = await usdfc.getPrice();
// Calculate current collateral ratio
const collateralRatio = trove.collateral.mul(price).div(trove.debt).mul(100);
console.log("Current collateral ratio:", collateralRatio.toString(), "%");
// Check if in danger of liquidation
const minSafeRatio = Decimal.from(120); // 120% is the minimum safe ratio
if (collateralRatio.lt(minSafeRatio)) {
console.log("WARNING: Your Trove is at risk of liquidation!");
// Calculate additional collateral needed to reach a safe ratio
const targetRatio = Decimal.from(150); // Target 150% for safety
const currentCollateralValue = trove.collateral.mul(price);
const targetCollateralValue = trove.debt.mul(targetRatio).div(100);
const additionalCollateralValue = targetCollateralValue.sub(currentCollateralValue);
const additionalCollateral = additionalCollateralValue.div(price);
console.log("Add at least", additionalCollateral.toString(), "FIL to reach a safe ratio of 150%");
return {
isAtRisk: true,
currentRatio: collateralRatio,
additionalCollateralNeeded: additionalCollateral
};
} else {
console.log("Your Trove is currently safe from liquidation");
return {
isAtRisk: false,
currentRatio: collateralRatio,
additionalCollateralNeeded: Decimal.from(0)
};
}
}
Copy
try {
await usdfc.openTrove({
collateral: Decimal.from(5),
borrowDebtToken: Decimal.from(1000)
});
} catch (error) {
if (error.message.includes("CollateralRatioTooLow")) {
console.error("The collateral ratio is too low. Add more collateral or borrow less.");
} else {
console.error("Transaction failed:", error);
}
}
Copy
const usdfc = await EthersSfStablecoin.connect(signer, {
useStore: "blockPolled"
});
// The store will automatically update when new blocks are mined
usdfc.store.onTroveChanged = (trove) => {
console.log("Trove updated:", trove);
};
sun-brightdesktopmoon
---
# Compound Factor | Secured Finance Docs
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#overview)
Overview
-------------------------------------------------------------------------------------------------------------------------------------
The Compound Factor is a value derived from the interest rate at the time one Orderbook reaches maturity and until the maturity of the next Orderbook. This value is determined by the Price Waterfall Mechanism during the Auto-roll process. In other words, the protocol continuously records a series of discount rates every three months.
By using the Compound Factor, you can calculate the value of the Genesis Date retrospectively. Conversely, it allows you to convert the Genesis Value into Future Value or present value.
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-it-works)
How It Works
---------------------------------------------------------------------------------------------------------------------------------------------
The Compound Factor mechanism is central to tracking and calculating values across different time periods in the protocol. It accounts for interest rates, fees, and the passage of time.
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#compound-factor-calculation)
Compound Factor Calculation
On the protocol, considering the fees, two types of Compound Factors for borrowers and lenders are continuously stored. Below are the formulas for each:
**Lending Compound Factor (LCF):**
LCFn+1\=LCFn×(1AutoRollPricen−AutoRollFeeRate)LCF\_{n+1} = LCF\_{n} \\times (\\frac{1}{AutoRollPrice\_{n} } - AutoRollFeeRate)LCFn+1\=LCFn×(AutoRollPricen1−AutoRollFeeRate)
**Borrowing Compound Factor (BCF):**
BCFn+1\=BCFn×(1AutoRollPricen+AutoRollFeeRate)BCF\_{n+1} = BCF\_{n} \\times (\\frac{1}{AutoRollPrice\_{n} } + AutoRollFeeRate)BCFn+1\=BCFn×(AutoRollPricen1+AutoRollFeeRate)
_n: Number of Rolls_
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#genesis-value-calculation)
Genesis Value Calculation
If you are a lender, the GV number will be positive and will remain the same. However, if you are a borrower of the asset, the GV will be negative, and your obligation will increase after each roll.
The GV for borrowers is calculated from the GV of lenders and Compound Factors. The calculation of Genesis Value (GV) for each user in our protocol is as follows:
**Genesis Value (GV):**
GVn+a\={GVn(GVn≥0)GVn+x(GVn<0)x\=GVn×(BCFn+aBCFn×LCFnLCFn+a−1)GV\_{n+a} = \\begin{cases} GV\_{n} & (GV\_{n} \\geq 0)\\\\ GV\_{n} + x & (GV\_{n} < 0) \\end{cases} \\\\\[3mm\] x = GV\_{n} \\times (\\frac{BCF\_{n+a}}{BCF\_{n}} \\times \\frac{LCF\_{n}}{LCF\_{n+a}} - 1)GVn+a\={GVnGVn+x(GVn≥0)(GVn<0)x\=GVn×(BCFnBCFn+a×LCFn+aLCFn−1)
_n: Number of Rolls_ &#xNAN;_a: Additional Roll periods_
In essence, the GV serves as a reflection of your role (lender or borrower) and the changes in your obligations over time within the protocol.
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#future-value-calculation)
Future Value Calculation
To calculate your Future Value (FV), you simply need to multiply the Genesis Value (GV) by the Compound Factor from the lending side. This formula allows you to determine the projected value of your assets or obligations in the future, based on the current Genesis Value and the Compound Factor.
**Future Value (FV):**
FVn\=GVn×LCFnFV\_{n} = GV\_{n} \\times LCF\_{n}FVn\=GVn×LCFn
_n: Number of Rolls_
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#key-parameters)
Key Parameters
-------------------------------------------------------------------------------------------------------------------------------------------------
Parameter
Description
Value
Lending Compound Factor (LCF)
Factor used to calculate lender's future value
Calculated per formula
Borrowing Compound Factor (BCF)
Factor used to calculate borrower's future obligations
Calculated per formula
AutoRollPrice
Price at which auto-roll occurs
Determined by Price Waterfall Mechanism
AutoRollFeeRate
Fee rate applied during auto-roll
Protocol-defined percentage
Genesis Value (GV)
Initial value of an asset or obligation
Positive for lenders, negative for borrowers
Future Value (FV)
Projected value of an asset or obligation
Calculated as GV × LCF
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#examples)
Examples
-------------------------------------------------------------------------------------------------------------------------------------
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#example-1-calculating-compound-factors-after-auto-roll)
Example 1: Calculating Compound Factors After Auto-Roll
Let's calculate how Compound Factors change after an Auto-Roll event:
1. Initial values before Auto-Roll:
* Lending Compound Factor (LCF₀) = 1.05
* Borrowing Compound Factor (BCF₀) = 1.07
* Auto-Roll Price = 98.00
* Auto-Roll Fee Rate = 0.001 (0.1%)
2. Calculate the new Lending Compound Factor:
3. Calculate the new Borrowing Compound Factor:
4. The updated Compound Factors after Auto-Roll are:
* LCF₁ = 1.0704
* BCF₁ = 1.0929
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#example-2-calculating-genesis-value-for-a-borrower-after-multiple-rolls)
Example 2: Calculating Genesis Value for a Borrower After Multiple Rolls
Let's calculate how a borrower's Genesis Value changes after multiple rolls:
1. Initial values:
* Initial Genesis Value (GV₀) = -1000 (negative because it's a borrower)
* Initial Lending Compound Factor (LCF₀) = 1.00
* Initial Borrowing Compound Factor (BCF₀) = 1.00
* After 2 rolls: LCF₂ = 1.06, BCF₂ = 1.08
2. Calculate the adjustment factor x:
3. Calculate the new Genesis Value:
4. The borrower's Genesis Value has increased in magnitude to -1018.9, reflecting the increased obligation due to interest accrual.
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#example-3-calculating-future-value-using-compound-factors)
Example 3: Calculating Future Value Using Compound Factors
Let's calculate the Future Value for both a lender and a borrower:
1. For a lender with GV = 500 and current LCF = 1.12:
The lender's Future Value is 560, representing their initial investment plus accrued interest.
2. For a borrower with GV = -800 and current LCF = 1.12:
The borrower's Future Value is -896, representing their debt obligation including accrued interest.
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#common-questions)
Common Questions
-----------------------------------------------------------------------------------------------------------------------------------------------------
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-do-compound-factors-differ-from-traditional-interest-rates)
How do Compound Factors differ from traditional interest rates?
Compound Factors differ from traditional interest rates in several ways:
1. **Cumulative Nature**: Compound Factors accumulate over time, representing the total growth factor since inception
2. **Protocol-Specific**: They are specifically designed for the Fixed-Rate Lending Protocol's auto-rolling mechanism
3. **Dual Factors**: The protocol maintains separate factors for lenders and borrowers to account for fees
4. **Value Calculation**: They directly translate Genesis Values to Future Values without requiring complex calculations
5. **Efficiency**: They enable efficient on-chain calculations with minimal computational overhead
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#why-are-there-separate-compound-factors-for-lenders-and-borrowers)
Why are there separate Compound Factors for lenders and borrowers?
Separate Compound Factors exist for several reasons:
1. **Fee Incorporation**: The difference accounts for protocol fees that create a spread between lending and borrowing rates
2. **Risk Management**: The spread helps cover potential defaults and maintain protocol solvency
3. **Protocol Revenue**: Part of the spread contributes to protocol revenue and sustainability
4. **Market Efficiency**: The dual factors create a transparent pricing mechanism for the lending market
5. **Accurate Accounting**: Separate factors ensure precise tracking of obligations for both sides of the market
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-do-compound-factors-change-during-market-stress)
How do Compound Factors change during market stress?
During market stress, Compound Factors may be affected in these ways:
1. **Auto-Roll Price Impact**: Market volatility can lead to higher or lower Auto-Roll prices, affecting the Compound Factor calculation
2. **Fee Adjustments**: The protocol might adjust Auto-Roll fee rates in response to market conditions
3. **Governance Intervention**: In extreme cases, governance might implement emergency measures affecting Compound Factors
4. **Liquidity Effects**: Reduced liquidity can lead to wider spreads between lending and borrowing Compound Factors
5. **Circuit Breaker Activation**: If circuit breakers are triggered, this may affect the Auto-Roll price determination
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#what-happens-to-compound-factors-if-i-enter-the-market-between-auto-rolls)
What happens to Compound Factors if I enter the market between Auto-Rolls?
When entering the market between Auto-Rolls:
1. **Immediate Application**: The current Compound Factors apply to your position immediately
2. **Pro-Rated Interest**: You effectively receive or pay interest based on the time remaining until the next Auto-Roll
3. **Genesis Value Calculation**: Your Genesis Value is calculated based on the current market price and Compound Factors
4. **Future Value Projection**: Your Future Value is calculated using the current Compound Factors
5. **Next Roll Impact**: Your position will be subject to the next Auto-Roll like all other positions
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-do-compound-factors-ensure-fair-interest-distribution)
How do Compound Factors ensure fair interest distribution?
Compound Factors ensure fair interest distribution through:
1. **Transparent Calculation**: The formula is transparent and applied consistently to all participants
2. **Market-Driven Rates**: Auto-Roll prices are determined by market forces, ensuring rates reflect supply and demand
3. **Continuous Tracking**: The protocol continuously tracks and updates Compound Factors
4. **Proportional Application**: Interest is applied proportionally to all positions based on their Genesis Values
5. **Historical Record**: The protocol maintains a historical record of all Compound Factors for accurate accounting
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#related-resources)
Related Resources
-------------------------------------------------------------------------------------------------------------------------------------------------------
* [Orderbook Deep Dive](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive)
* [Genesis Value](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/genesis-value)
* [Orderbook Rotation](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/orderbook-rotation)
* [Auto-Rollingarrow-up-right](https://github.com/Secured-Finance/secured-finance-docs/blob/main/fixed-rate-lending/market-dynamics/auto-rolling/README.md)
[PreviousGenesis Valuechevron-left](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/genesis-value)
[NextContracts and Securitychevron-right](https://docs.secured.finance/fixed-rate-lending/deployed-contracts)
Last updated 10 months ago
* [Overview](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#overview)
* [How It Works](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-it-works)
* [Compound Factor Calculation](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#compound-factor-calculation)
* [Genesis Value Calculation](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#genesis-value-calculation)
* [Future Value Calculation](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#future-value-calculation)
* [Key Parameters](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#key-parameters)
* [Examples](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#examples)
* [Example 1: Calculating Compound Factors After Auto-Roll](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#example-1-calculating-compound-factors-after-auto-roll)
* [Example 2: Calculating Genesis Value for a Borrower After Multiple Rolls](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#example-2-calculating-genesis-value-for-a-borrower-after-multiple-rolls)
* [Example 3: Calculating Future Value Using Compound Factors](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#example-3-calculating-future-value-using-compound-factors)
* [Common Questions](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#common-questions)
* [How do Compound Factors differ from traditional interest rates?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-do-compound-factors-differ-from-traditional-interest-rates)
* [Why are there separate Compound Factors for lenders and borrowers?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#why-are-there-separate-compound-factors-for-lenders-and-borrowers)
* [How do Compound Factors change during market stress?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-do-compound-factors-change-during-market-stress)
* [What happens to Compound Factors if I enter the market between Auto-Rolls?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#what-happens-to-compound-factors-if-i-enter-the-market-between-auto-rolls)
* [How do Compound Factors ensure fair interest distribution?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#how-do-compound-factors-ensure-fair-interest-distribution)
* [Related Resources](https://docs.secured.finance/fixed-rate-lending/advanced-topics/orderbook-deep-dive/compound-factor#related-resources)
sun-brightdesktopmoon
Copy
LCF₁ = LCF₀ × (1/AutoRollPrice₀ - AutoRollFeeRate)
LCF₁ = 1.05 × (1/0.98 - 0.001)
LCF₁ = 1.05 × (1.0204 - 0.001)
LCF₁ = 1.05 × 1.0194
LCF₁ = 1.0704
Copy
BCF₁ = BCF₀ × (1/AutoRollPrice₀ + AutoRollFeeRate)
BCF₁ = 1.07 × (1/0.98 + 0.001)
BCF₁ = 1.07 × (1.0204 + 0.001)
BCF₁ = 1.07 × 1.0214
BCF₁ = 1.0929
Copy
x = GV₀ × (BCF₂/BCF₀ × LCF₀/LCF₂ - 1)
x = -1000 × (1.08/1.00 × 1.00/1.06 - 1)
x = -1000 × (1.08 × 0.9434 - 1)
x = -1000 × (1.0189 - 1)
x = -1000 × 0.0189
x = -18.9
Copy
GV₂ = GV₀ + x
GV₂ = -1000 + (-18.9)
GV₂ = -1018.9
Copy
FV = GV × LCF
FV = 500 × 1.12
FV = 560
Copy
FV = GV × LCF
FV = -800 × 1.12
FV = -896
sun-brightdesktopmoon
---
# Base Price Adjustment | Secured Finance Docs
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#overview)
Overview
---------------------------------------------------------------------------------------------------------------------------------------
In the case of Zero Coupon Bonds, which begin trading at a significant discount and mature at par value (100 on our platform), borrowers are required to progressively increase their collateral over time.
**To safeguard borrowers from the risk of liquidation, while also minimizing insolvency risks for our protocol, we mandate a minimum collateral requirement that varies based on the currency and the duration of the loan.**
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#how-it-works)
How It Works
-----------------------------------------------------------------------------------------------------------------------------------------------
To secure user assets and protect the protocol from market exploitation, we introduce the minimum collateral base price (**Base Price: BP**). It will be used to calculate the required collateral for borrowers such that the input bond price is lower than the BP.
The BP is determined according to the following formula and pre-set reference base prices, categorized by the asset's yield range. It is an interpolated value with the corresponding duration of the bonds **t: time to maturity**, using two reference base prices, BP at Maturity and BP of 1y Duration.
####
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#formulaic)
Formulaic:
BP(t)\=PM−t/(secondsPerYear)∗(PM−P1Y)BP(t) = P\_{M} - t/(secondsPerYear) \* (P\_{M} - P\_{1Y})BP(t)\=PM−t/(secondsPerYear)∗(PM−P1Y)
BP (t)
Minimum collateral required base price
P\_M
Reference Base Price at Maturity (0y Duration)
P\_1Y
Reference Base Price of 1y Duration
t
Time to maturity in seconds
secondsPerYear
365 \* 24 \* 60 \* 60
Category
Yield range
BP at Maturity
BP of 1y Duration
A
0%~3%
96.00
93.00
B
3%~5%
96.00
91.00
C
5%~7.5%
96.00
89.00
D
7.5%~10%
96.00
87.00
E
10%~15%
96.00
84.00
F
15%~
96.00
81.00
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#key-parameters)
Key Parameters
---------------------------------------------------------------------------------------------------------------------------------------------------
Parameter
Description
Default Value
BP at Maturity
Reference Base Price at maturity (0y Duration)
96.00
BP of 1y Duration
Reference Base Price at 1 year duration
Varies by category (81.00-93.00)
Category Review Period
How often categories are reviewed
Quarterly
Category Assignment
How currencies are assigned to yield categories
Based on APR range
Interpolation Method
How BP is calculated between reference points
Linear interpolation
Time Unit
Base time unit for calculations
Seconds
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#examples)
Examples
---------------------------------------------------------------------------------------------------------------------------------------
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#example-1-calculating-base-price-for-short-term-bonds)
Example 1: Calculating Base Price for Short-Term Bonds
For a Category A bond (0-3% yield range) with 0.25 years to maturity:
BP(0.25y)\=96.00−0.25y/1y∗(96.00−93.00)\=95.25BP(0.25y) = 96.00 - 0.25y/1y \* (96.00-93.00) = 95.25BP(0.25y)\=96.00−0.25y/1y∗(96.00−93.00)\=95.25
This means that for this short-term bond, the minimum collateral base price is 95.25. Any borrowing against this bond would use this value to calculate the required collateral, ensuring adequate protection as the bond approaches maturity.
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#example-2-calculating-base-price-for-medium-term-bonds)
Example 2: Calculating Base Price for Medium-Term Bonds
For a Category C bond (5-7.5% yield range) with exactly 1 year to maturity:
BP(1y)\=96.00−1y/1y∗(96.00−89.00)\=89.00BP(1y) = 96.00 - 1y/1y \* (96.00-89.00) = 89.00BP(1y)\=96.00−1y/1y∗(96.00−89.00)\=89.00
This medium-term bond has a lower base price of 89.00, reflecting the higher yield and longer duration. Borrowers would need to maintain collateral based on this value to avoid liquidation.
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#example-3-calculating-base-price-for-long-term-bonds)
Example 3: Calculating Base Price for Long-Term Bonds
For a Category F bond (15%+ yield range) with 1.5 years to maturity:
BP(1.5y)\=96.00−1.5y/1y∗(96.00−81.00)\=73.50BP(1.5y) = 96.00 - 1.5y/1y \* (96.00-81.00) = 73.50BP(1.5y)\=96.00−1.5y/1y∗(96.00−81.00)\=73.50
This long-term, high-yield bond has a significantly lower base price of 73.50, reflecting the higher risk and longer time to maturity. Borrowers using this bond as collateral would need to be particularly vigilant about maintaining adequate collateralization.
circle-info
In the examples above, we simplified the calculations by using annualized Duration. However, it's important to note that the actual calculations for our contract are based on seconds.
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#setting-category)
Setting Category
Category will be set depending on the APR of the currency.
####
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#current-category)
Current Category
Currency
Category
BTC
A
ETH
B
FIL
F
USDFC
C
USDC
C
We review the category in quarterly basis and revise if needed with community vote on the APR movement during the observing period.
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#common-questions)
Common Questions
-------------------------------------------------------------------------------------------------------------------------------------------------------
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#why-is-base-price-adjustment-necessary)
Why is Base Price Adjustment necessary?
Base Price Adjustment is necessary for several important reasons:
1. **Protection Against Liquidation**: It protects borrowers from unexpected liquidations as bond prices naturally approach par value near maturity
2. **Risk Management**: It ensures the protocol maintains adequate collateralization as market conditions change
3. **Price Manipulation Prevention**: It prevents malicious actors from manipulating prices to trigger unfair liquidations
4. **Market Stability**: It contributes to overall market stability by setting reasonable minimum collateral requirements
5. **Yield Curve Alignment**: It aligns collateral requirements with the natural yield curve of different assets
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[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#how-are-yield-categories-determined)
How are yield categories determined?
Yield categories are determined through the following process:
1. **Historical Analysis**: Analysis of historical yield ranges for each supported asset
2. **Market Benchmarks**: Comparison with market benchmarks and similar assets
3. **Risk Assessment**: Evaluation of the asset's volatility and liquidity characteristics
4. **Protocol Governance**: Final approval through protocol governance mechanisms
5. **Quarterly Review**: Regular review and potential adjustment based on market conditions
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[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#what-happens-if-market-yields-change-significantly-between-quarterly-reviews)
What happens if market yields change significantly between quarterly reviews?
If market yields change significantly between quarterly reviews:
1. **Emergency Review**: Protocol governance can initiate an emergency review if necessary
2. **Gradual Adjustment**: Any changes to categories are typically implemented gradually
3. **Safety Buffer**: The category system includes built-in buffers to accommodate some yield fluctuation
4. **Monitoring Systems**: Continuous monitoring alerts governance to significant deviations
5. **User Communication**: Users are notified of any potential category changes in advance
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#how-does-base-price-affect-my-borrowing-position)
How does Base Price affect my borrowing position?
Base Price affects your borrowing position in several ways:
1. **Minimum Collateral**: It determines the minimum amount of collateral you must maintain
2. **Liquidation Threshold**: It influences when your position becomes eligible for liquidation
3. **Borrowing Capacity**: It affects how much you can borrow against your collateral
4. **Position Management**: You may need to add more collateral as maturity approaches
5. **Risk Exposure**: Lower Base Price (higher category) means higher collateral requirements
###
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#can-i-predict-how-my-collateral-requirements-will-change-over-time)
Can I predict how my collateral requirements will change over time?
Yes, you can predict collateral requirement changes:
1. **Formula Transparency**: The Base Price formula is publicly available and deterministic
2. **Time-Based Calculation**: Requirements change based on time to maturity, which is known
3. **Category Stability**: Categories typically remain stable during the quarterly periods
4. **Simulation Tools**: The protocol provides tools to simulate future collateral requirements
5. **Advance Notice**: Any category changes are announced in advance through governance
[hashtag](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#related-resources)
Related Resources
---------------------------------------------------------------------------------------------------------------------------------------------------------
* [Safety Measures](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures)
* [Circuit Breaker](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/circuit-breaker)
* [Emergency Global Settlement](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/emergency-global-settlement)
* [Minimum Collateralarrow-up-right](https://github.com/Secured-Finance/secured-finance-docs/blob/main/core-mechanics/collateralization.md)
[PreviousPrice Range Limitschevron-left](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/circuit-breaker/price-range-limits)
[NextEmergency Global Settlementchevron-right](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/emergency-global-settlement)
Last updated 10 months ago
* [Overview](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#overview)
* [How It Works](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#how-it-works)
* [Key Parameters](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#key-parameters)
* [Examples](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#examples)
* [Example 1: Calculating Base Price for Short-Term Bonds](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#example-1-calculating-base-price-for-short-term-bonds)
* [Example 2: Calculating Base Price for Medium-Term Bonds](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#example-2-calculating-base-price-for-medium-term-bonds)
* [Example 3: Calculating Base Price for Long-Term Bonds](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#example-3-calculating-base-price-for-long-term-bonds)
* [Setting Category](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#setting-category)
* [Common Questions](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#common-questions)
* [Why is Base Price Adjustment necessary?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#why-is-base-price-adjustment-necessary)
* [How are yield categories determined?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#how-are-yield-categories-determined)
* [What happens if market yields change significantly between quarterly reviews?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#what-happens-if-market-yields-change-significantly-between-quarterly-reviews)
* [How does Base Price affect my borrowing position?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#how-does-base-price-affect-my-borrowing-position)
* [Can I predict how my collateral requirements will change over time?](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#can-i-predict-how-my-collateral-requirements-will-change-over-time)
* [Related Resources](https://docs.secured.finance/fixed-rate-lending/advanced-topics/safety-measures/base-price-adjustment#related-resources)
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