Storage Provider Liquidation Value

In addition to equity values, liquidation values are used to determine borrow limits

An SP's liquidation value represents the amount of FIL the protocol expects to recover in a liquidation event. To read more about liquidations, see here.

It's extremely important each Storage Provider understands liquidation values and their significance within the protocol.

Liquidation values are computed as follows:

1. Compute SP maximum termination penalty - the termination penalty is the amount of FIL that will be slashed after terminating the SP's active sectors.

2. Compute SP recovery rate - computed as:

   $RecoveryRate = (InitialPledge - TerminationPenalty) / InitialPledge * 100$

3. Compute SP liquidation value - computed as:

   $LiquidationValue = AvailableBalance*RecoveryRate + VestingBalance + InitialPledge - TerminationPenalty$

Using an example, let's imagine an SP with the following balances:

• Initial Pledge - 100 FIL

• Available Balance - 20 FIL

• Vesting Balance - 10 FIL

• Max Termination Penalty - 15 FIL

The recovery rate is:

• $RecoveryRate = (InitialPledge - TerminationPenalty) / InitialPledge * 100$

• (100-15)/100 => 85/100 => 85% recovery rate

The liquidation value is:

• $LiquidationValue = AvailableBalance*RecoveryRate + VestingBalance + InitialPledge - TerminationPenalty$

• (20 * 85%) + 10 + 100 - 15 = 112 FIL liquidation value