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Risk Ratio

Risk ratios are the core mechanism that governs leverage limits and position safety in DeepBook Margin. Understanding these ratios is essential for managing margin positions effectively.

What is a risk ratio?​

The risk ratio is defined as:

risk_ratio = total_assets / total_debts

Where assets and debts are valued in a common denomination using oracle prices. A higher risk ratio indicates a safer position with more collateral relative to debt.

  • Risk ratio = 2.0: You have 2 units of assets for every 1 unit of debt (50% LTV)
  • Risk ratio = 1.25: You have 1.25 units of assets for every 1 unit of debt (80% LTV)
  • Risk ratio = 1.0: Your assets exactly equal your debts (100% LTV, insolvent)

Risk ratio thresholds​

Each trading pair has four risk ratio thresholds that control different operations:

Min Withdraw Risk Ratio​

The minimum risk ratio required after withdrawing collateral.

  • If a withdrawal would cause your position's risk ratio to fall below this threshold, the withdrawal is rejected
  • This prevents users from extracting too much collateral and leaving an unsafe position
  • Typically set to 2.0 (50% LTV), meaning you must maintain at least 2 units of assets per 1 unit of debt to withdraw

Min Borrow Risk Ratio​

The minimum risk ratio required after borrowing additional funds.

  • If a borrow would cause your position's risk ratio to fall below this threshold, the borrow is rejected
  • This determines the maximum leverage available for the trading pair
  • A min borrow ratio of 1.25 allows approximately 5x leverage
  • A min borrow ratio of 1.5 allows approximately 3x leverage

Liquidation Risk Ratio​

The risk ratio threshold at which a position becomes eligible for liquidation.

  • When a position's risk ratio falls to or below this value, anyone can liquidate the position
  • This is the "danger zone" - if price moves against you and your ratio hits this level, you can be liquidated
  • Typically set between 1.1 and 1.2 depending on asset volatility

Target Liquidation Risk Ratio​

The target risk ratio that liquidation aims to restore the position to.

  • Liquidation repays enough debt to bring the position back to a healthy state at this ratio
  • This ensures the position is safe after liquidation, not just barely above the liquidation threshold
  • Typically equals the Min Borrow Risk Ratio

How leverage is determined​

The maximum leverage for a trading pair is determined by the Min Borrow Risk Ratio:

Max Leverage≈11−1Min Borrow Risk Ratio\text{Max Leverage} \approx \frac{1}{1 - \frac{1}{\text{Min Borrow Risk Ratio}}}

Min Borrow Risk RatioApproximate Max Leverage
1.255x
1.53x
2.02x

Example: SUI/USDC position lifecycle​

Consider a SUI/USDC position with the following risk parameters:

  • Min Withdraw Risk Ratio: 2.0
  • Min Borrow Risk Ratio: 1.25
  • Liquidation Risk Ratio: 1.1
  • Target Liquidation Risk Ratio: 1.25

Opening a position:

  1. You deposit 100 USDC as collateral
  2. You borrow 400 USDC worth of SUI
  3. Total assets = 100 USDC collateral + 400 USDC worth of SUI = 500 USDC
  4. Total debt = 400 USDC
  5. Risk ratio = 500/400 = 1.25 (at the minimum borrow ratio)
  6. You now have 5x leveraged exposure to SUI

Price moves in your favor:

  1. SUI price increases 10%, your SUI is now worth 440 USDC
  2. Total assets = 100 + 440 = 540 USDC, debt is still 400 USDC
  3. Risk ratio = 540/400 = 1.35 (safer position)
  4. You can withdraw some profit, as long as ratio stays above 2.0

Price moves against you:

  1. SUI price drops 10%, your SUI is now worth 360 USDC
  2. Total assets = 100 + 360 = 460 USDC, debt is still 400 USDC
  3. Risk ratio = 460/400 = 1.15 (approaching liquidation)
  4. If SUI drops further to 340 USDC worth, ratio = (100 + 340)/400 = 1.1 (liquidation threshold)
  5. Your position can now be liquidated by anyone
  6. Liquidator repays part of your debt and receives collateral plus a reward
  7. After liquidation, your remaining position has a risk ratio of 1.25

Liquidation rewards​

When a position is liquidated:

  • User Liquidation Reward: A percentage of the liquidated amount paid to the liquidator as incentive (typically 2%)
  • Pool Liquidation Reward: A percentage paid to the margin pool to cover potential bad debt (typically 3%)

These rewards ensure liquidators are incentivized to maintain system health and the protocol has reserves against defaults.

Risk management best practices​

  1. Monitor your risk ratio: Keep track of your position's health, especially during volatile markets
  2. Maintain a buffer: Don't borrow up to the maximum - leave room for price fluctuations
  3. Set stop losses: Use TPSL orders to automatically close positions before liquidation
  4. Understand the assets: Higher volatility assets typically have stricter risk parameters (lower leverage)
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Contract Information

View current risk parameters for each trading pair.

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Take Profit Stop Loss

Learn how to set up automated risk management orders.