There was a time I opened a Position, went to brush my teeth for 5 minutes, and when I came back I was still checking the Health Factor before even looking at the BTC price...
that was when it started to feel funny.
we say we're managing capital, but capital is managing us instead!
on the Public Testnet of
@BabylonLabs_io I tried using 0.08 BTC worth 8,000 USDT as Collateral.
BTC Collateral Factor of 78% brings the Risk-Adjusted Collateral Value down to 6,240 USDT.
if Debt is 4,000 USDT, Health Factor = 6,240 / 4,000 = 1.56.
sounds pretty comfortable.
but I no longer look at Maximum Borrowing Capacity... I look at Liquidation Price, Safety Margin and ask myself: if BTC takes a Drawdown at 3 a.m., what would happen to me?
BTC drops 25%, Collateral Value falls to 6,000 USDT.
after the Collateral Factor, only 4,680 USDT is counted, with the Health Factor at around 1.17.
still above the Liquidation Boundary of 1.0.
still some Volatility Buffer left.
then I increased Debt to 5,500 USDT to see what “better” Capital Efficiency feels like.
the initial Health Factor is around 1.13.
BTC only needs to drop 15%, and it is already around 0.96.
before accounting for Interest Accrual.
before accounting for Oracle Update.
before accounting for Liquidation Bonus.
three things that sound highly technical, but when Position Health drops fast, they stop being theory...
TBV gives me what I like: Native BTC stays on Bitcoin, Self-Custody still preserves Asset Control.
but Application-Side Parameters are still running, Lending Risk is still running, and Liquidation Risk has not gone anywhere either.
to be fair, I am starting to dislike Positions with Capital Efficiency that looks too beautiful.
for me, the largest Borrowing Capacity is not necessarily an advantage.
a good Position should be able to withstand Market Volatility... without turning every Price Decline into an alarm.
would you choose more Yield, more Leverage... or keep a Safety Margin large enough that you do not even need to remember you have a Position?
#baby $BABY @BabylonLabs_io