Aries Aries collateral borrowing limits and liquidation exposure
Aries collateral consisted of eligible deposits that backed loans within an Aries Markets account. Borrowing capacity reflected asset values and their risk settings, while price drops could move a debt-bearing position into liquidation. Aries Markets has wound down; borrowing against these deposits formed part of its historical lending design.
Last updatedA supplied balance, unused borrowing power, and removable collateral described different parts of the account. When debt remained open, a deposit could support a loan without being available for immediate withdrawal.
In short: An unchanged collateral token balance did not preserve liquidation margin when asset prices shifted or borrowing interest increased the debt.
Supplied assets and eligible borrowing
Only an eligible deposit in the borrowing account contributed collateral backing under the reserve rules that applied to that asset. Each reserve determined whether its deposits could increase borrowing power, so supplying crypto to a lending pool did not establish collateral eligibility by itself. The asset’s collateral factor determined how much of its accepted value contributed to the borrowing allowance.
The over-collateralized design required a value buffer between supplied crypto and the market value of the loan. The loan drew on shared lending liquidity, so even substantial eligible collateral could not supply tokens that the borrowing pool lacked. The documented borrowing flow also prohibited borrowing an asset while the account still held a deposit of that asset.
The account record behind a collateral balance
The relevant position belonged to the profile that held the deposited and borrowed reserves, with each side recorded separately. Its collateral record tracked lending receipt units and its debt record tracked borrowing shares; neither count alone stated the underlying crypto value or remaining allowance. Understanding the position required the associated reserve conversion and debt values. A wallet holding and a deposit recorded inside a borrowing profile described different locations for assets.
Borrowing allowances and liquidation boundaries
When deposits backed debt, the borrowing allowance and liquidation boundary used different risk parameters, even though both depended on asset values.
Collateral factors and unused capacity
The loan-to-value (LTV) setting weighted each eligible deposit’s value for borrowing purposes. Combining those contributions gave the account’s total borrowing power. Available borrowing power subtracted the existing risk-adjusted debt from that total. Gross deposited value therefore overstated the amount that remained available for another loan.
A borrowing limit described permitted credit, while a liquidation boundary described when an existing position became eligible for liquidation.
Borrow factors on the debt side
Aries adjusted borrowed-asset values using asset-specific borrow factors. The calculation divided a debt asset’s market value by the applicable factor, so a lower positive factor increased the adjusted liability. The borrowed asset therefore influenced capacity alongside the collateral that supported it.
Liquidation-weighted collateral
Each collateral asset’s value and liquidation threshold contributed to the account’s weighted liquidation boundary. Comparing adjusted debt with that backing described the position’s liquidation risk. Substituting a borrowing collateral factor for a liquidation threshold confused the lending allowance with the point at which an existing loan became vulnerable.
How could collateral become liquidatable without a new loan?
If collateral lost value relative to the debt, the existing loan could breach the account’s liquidation boundary without further borrowing.
Relative asset prices
A price increase in a borrowed asset could raise the value of an existing debt. Falling collateral prices could also reduce the backing, and both movements could occur together. An unchanged token quantity did not preserve the earlier margin.
Accrued borrowing interest
Accrued borrowing interest increased the loan obligation at a rate that responded to the lending reserve’s utilization. A flat collateral price did not freeze account risk. The account needed sufficient backing for the debt that existed after accrual.
Collateral transferred during liquidation
Liquidation reduced debt through a liquidator’s repayment and transferred collateral in return. The liquidation bonus awarded extra collateral to the liquidator, so collateral surrendered could exceed the value of debt settled. Eligibility for liquidation exposed the deposited assets to that transfer even when the borrower had planned to retain them.
A smaller borrowing request after collateral repricing
Consider a hypothetical historical account while borrowing was available. A borrower wanted to know whether an earlier loan request still fitted after collateral lost value. All account values, repricing outcomes, and proposed debt additions here are hypothetical USD values after risk adjustment. Assume eligible collateral, permitted borrowing, sufficient reserve liquidity, and no other constraint that blocks the loan.
With borrowing power of 1236 and existing adjusted debt of 736, a loan that added 286 would bring adjusted debt to 1022 and leave 214 of unused borrowing power. Its liquidation-weighted collateral value was 1326, leaving 304 above the proposed debt. With unchanged inputs and successful execution, the profile’s borrow record would reflect the added obligation.
Before authorization, suppose repricing instead lowered borrowing power to 896 and liquidation-weighted collateral to 966. The original request would still propose total debt of 1022, above the borrowing allowance and liquidation boundary. The borrower left the request unsigned, so it created no additional debt.
Changing only the unsigned request to add 126 of adjusted debt reduced the proposed total to 862. That left 34 of borrowing allowance and 104 of liquidation-weighted backing above the debt. These additions described adjusted liabilities, not token quantities received. Further price changes, accrued interest, or altered risk settings would invalidate the snapshot and require another calculation.
Loan repayment and collateral removal
Removing eligible collateral reduced the backing that remaining debt could use, while repaying a loan reduced the account’s obligation.
The effect on remaining debt
Repayment could create more room between debt and the account’s risk limits, while withdrawing collateral moved that relationship in the opposite direction if the debt stayed unchanged. The removable amount therefore depended on the position after the proposed withdrawal. Treating the entire deposit as surplus ignored the portion that still supported borrowing.
The reserve’s redemption permission
The reserve configuration separately controlled whether lending receipts could be redeemed for underlying tokens. Debt reduction alone could not override that permission. A collateral balance represented an account claim, while redemption determined whether the reserve released the underlying asset.
A configured withdrawal fee applied to redemption from the pool.
The pool’s available tokens
Outstanding loans used some of the liquidity that depositors had supplied to a reserve, so withdrawal availability also depended on the pool’s available cash. A lower account risk did not guarantee that the pool held enough tokens for the requested withdrawal.
Collateral for leveraged swaps and correlated borrowing
Collateral also supported leveraged swaps and category-specific borrowing during operation, with those uses changing exposure or the applicable risk settings. A leveraged swap could change the deposited asset mix while the associated loan obligation remained. The resulting collateral needed its own eligibility and weighting. A favorable exchange rate alone did not establish that the new position retained the earlier borrowing capacity.
Efficiency Mode, also called E-Mode, increased borrowing allowances for eligible categories of price-correlated collateral and debt under the parameters that applied to those combinations. Correlated prices did not establish a fixed relationship under every market condition. An account using the higher allowance could still face liquidation if collateral values fell enough relative to its debt. Changing the collateral mix or borrowed asset could therefore change the supported loan size without increasing gross deposited value.
Questions and answers about Aries collateral
Could a pool’s borrow cap block a loan despite sufficient collateral?
An asset-specific borrow limit could constrain a loan even when the account had enough collateral. That reserve-level setting governed borrowing amounts separately from the account’s borrowing power. Available pool liquidity also constrained access to the asset, so collateral value alone did not determine whether a request could proceed.
Was a zero collateral factor the same as a worthless token?
An applied zero borrowing collateral factor gave that asset no contribution to borrowing power through that factor. It did not state the token’s market price or establish that its deposited balance had no value. Lending support, collateral eligibility, and liquidation parameters described different aspects of the reserve configuration.
Does a matching ticker identify the correct collateral asset?
A ticker alone does not establish token identity. Aries associated each reserve with a specific asset type, so similarly named balances could belong to different reserves. Collateral eligibility followed the identified reserve. A matching display name did not carry its loan-to-value parameters or borrowing support to another asset.
What remained after a partial collateral liquidation?
A partial liquidation could leave both outstanding debt and remaining collateral. Those balances continued to determine the position’s risk, so one liquidation did not necessarily settle the whole loan. Any later repayment or withdrawal depended on the remaining obligation, the collateral that still backed it, and the applicable reserve conditions.
How did deposit earnings affect the net cost of collateral-backed borrowing?
Deposit earnings and borrowing charges affected different balances, so their financial effect depended on both position sizes and rates. A higher lending rate alone did not establish that earnings covered the debt’s interest. Comparing the amounts also required a common valuation basis when collateral and debt used different assets.
Were separate subaccounts able to share collateral automatically?
Separate subaccounts isolated their portfolios and risk, so collateral in one did not automatically back debt in another. The relevant backing belonged to the profile that held the loan position. Combining balances across profiles could therefore overstate that position’s borrowing capacity and understate its exposure to liquidation.