Auto E-Mode

Auto E-Mode (Auto Efficiency Mode) automatically groups the collateral and borrowed assets with highly correlated prices together to enable the highest borrowing power.

Current Modes:

• Stable mode – All stablecoins and their derivatives

  • USDT, USDC

• Non-stable mode – All non-stable assets

• LST mode – All WETH and its derivatives

  • WETH, mETH, wstETH

• LP as collateral mode (coming soon)

When a user adds collateral and borrows tokens to a position, INIT automatically directs the position to the mode which provides the highest achievable health factor.

However, if the user adds collateral or borrows tokens outside of the position’s current mode, the mode may change, leading to a lower health factor.

Here’s an example of how Auto E-Mode optimizes asset utilization for improved efficiency:

In default mode, User A uses mETH as collateral with a collateral factor of 0.75 to borrow ETH with a borrow factor of 1.2. If the user opens a position with 10 mETH as collateral, the maximum amount of ETH that the user can borrow is 6.25 ETH.

Let’s say ETH price is at $2,000. Using mETH with a collateral factor of 0.75 in default mode means that the user can borrow up to 75% of the mETH collateral value. Providing 10 mETH as collateral results in the collateral credit of:

$$CollateralCredit: 10*2000*0.75=15000$$

Borrowing ETH with a borrow factor of 1.2 means that the borrow credit is higher to act as a buffer to reduce the chance of default risk. So the borrow credit would be:

$$Borrow Credit: 6.25*2000*1.2$$

Since the health factor is derived from Collateral Credit / Borrow Credit, the example above would result in the Health Factor = 1. This means the position is at the liquidatable point. The user must borrow less than 6.25 ETH for a more favorable health factor.

However, if the user opens the same position in LST mode, where the mETH collateral factor is 0.9 and the ETH borrow factor is 1.05, the user, with the same 10 mETH collateral, can now borrow up to 8.57 ETH.

With the same ETH price, in LST mode, the user can now borrow up to 90% of their mETH collateral value. This provides the collateral credit of:

$$CollateralCredit:10*2000*0.9=18000$$

In LST mode, knowing that the collateral and borrow assets are correlated, the borrow factor for ETH with mETH as collateral is 1.05, meaning that the user can borrow more ETH from the original borrowing capacity. This results in the borrow credit of:

$$BorrowCredit: 8.57*2000*1.05=~17997$$

With default mode, the parameters are generally adjusted to have wider buffer range, providing less margin to borrow. With LST mode, the system knows that the assets are correlated, therefore, there are less chances of deviation between the two assets. With that, the parameters do not need to have a wide buffer range and users can borrow at a higher capacity, as well as increased borrow credit.