AAR--Asset Adequacy Ratio

AAR--Asset Adequacy Ratio signifies the capability of the protocol vault to cover the USB debt. It is used to assess the vault's health. Below is the calculation for AAR, taking the ETH vault as an example.

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Calculation of AAR

The AAR for ETH vault is calculated as follows:

$$AAR_{eth} = \frac{M_{ETH} \times P_{eth}}{M_{USB-ETH}} \times 100\%$$

Where:

• $M_{ETH}$ is the amount of ETH in the vault.

• $P_{eth}$ is the current price of ETH, obtained from the oracle.

• $M_{USB-ETH}$ is the amount of USB minted from the ETH vault.

A negative correlation exists between the AAR and the proportion of USB within the protocol vault:

Figure : Corresponding relationship between the AAR and Proportions of USB

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Thresholds of AAR

• AART: Target AAR

  Target AAR represents the ideal state of the vault.

• AARS: Safety AAR

  When below the Safety AAR, the pool's ability to repay USB debt is at risk.

• AARU: Upper AAR

  When above the Upper AAR, the leverage ratio of Margin tokens becomes less attractive.

The thresholds of AAR for each vault can be set individually.

S-Vault only has AARS.

AAR Rebalancing

Unlike traditional lending protocols, Wand does not enforce liquidations. Instead, it introduces an Adjustment mode, PTY--Price Trigger Yield and a Discount Offer mechanism to dynamically adjust the AAR. This allows anyone to participate and potentially earn arbitrage profits, ensuring the Vault's health.