# Risks parameters

We want to remind our users that there are many risks when using Defi products, our team will try our best to mitigate these risks. However, humans err. So do make sure that you are aware of the risks associated.

The risks involves using our protocols includes:

* Kulfi Finance Contract Risk: we try our best to write safe code and we do internal and external code review as well as audits by reputable auditing firm. However, we do want to remind our users that issue could arise
* Oracle Risk: we choose Chainlink Oracle as our providers. They are backed by some of the most reputable trading firms. However, there could still be risk of an inaccurate or wrong price data is feed into our lending products

#### Loan To Value (LTV):&#x20;

LTV is the ratio between the maximum allowed borrow value and the collateral value.&#x20;

**Liquidation Threshold:**&#x20;

Liquidation threshold is the ratio between borrow amount and the collateral value at which the users are subject to liquidation.

#### Liquidation Bonus

Liquidation bonus is the **extra** amount of collateral that the liquidator will get for taking the risk of liquidating the users.

**Kulfi Liquidation Factor**

Liquidation occurs when a user's total borrow has reached a threshold, i.e. the risk factor is greater than or equal to 100%.

$$
RiskFactor = \frac{ \Sigma_{borrow}  MarketValue_{borrow}}{ \Sigma_{collateral} LiquidationThreshold_{collateral} * MarketValue_{collateral}}
$$



Risk factor represents the overall liquidation risk for a given users. When the users add more collateral into the protocol, the risk reduces. Conversely when the users borrow more, the risk increases.

When a user has reached its liquidation threshold, up to 50% (in terms of market value) of the total borrowed asset is sold to the liquidator at a discounted price to repay a portion of the loan.&#x20;
