More on Transaction History

Health Factor Analysis

At any point in time, one's health factor (as introduced by protocols like Compound) is proportional to the ratio of the value of all collateral supplied to the value of all outstanding borrowed funds. In other words, a higher collateral balance relative to the amount borrowed will increase your health factor, whereas a higher amount borrowed relative to your collateral balance will decrease it.

Since your account typically becomes subject to liquidation once your health factor goes below 1, it is imperative that you monitor your health factor and maintain a safety buffer by supplying more collateral whenever necessary in order to prevent a potential liquidation event.

Accordingly, we take into account not only your current health factor in the DeFi ecosystem as a whole but also the entire history of your past health factors when calculating your MACRO score. As a result, a record of higher historical health factors would generally lead to a higher MACRO score, and vice versa. The idea is that users with a lower risk profile would tend to maintain relatively higher health factors while those with a higher risk profile would tend to borrow as much as possible such that their health factors would be relatively lower and close to 1.

Mathematically, the health factor can be calculated as follows.

  • Liquidation Threshold (also called collateral factor or liquidation ratio) per asset is the % threshold of a borrow position relative to a collateral position at which point the position becomes undercollateralized and subject to liquidation.

  • Total Borrows include accumulated interest.

Certain pertinent points relating to the health factor that you might want to consider from a MACRO score perspective are:

  • Depending on a change in the value of your collateralized assets due to market volatility, the health factor will increase or decrease. If it increases, your MACRO score will generally be affected positively.

  • If a loan is not repaid for a substantial period of time, the accrued interest on the loan can grow as time passes and therefore impact your health factor (and hence MACRO score) negatively.

In sum, one should attempt to maintain a good history of health factors by either supplying more assets or repaying outstanding borrows in order to achieve a good MACRO score, ceteris paribus.

Rug Pull Analysis

A rug pull in DeFi is when malicious individuals create a token with an intent to scam, list it on a decentralized exchange like Uniswap, and pair it with a leading cryptocurrency like Ethereum. By the time oblivious investors purchase the tokens in a pool using ETH, the scammers instantly remove all liquidity in the pool (hence the term rug pull) and abscond with the investors' funds.

While rug pulls have been prevalent on Uniswap, the reason they have garnered attention in the first place can be explained by the high-risk high-reward nature of tokens in DeFi. In other words, the demand side of rug pulls has come from DeFi users with a high risk appetite as they aim to hunt for the next big hit.

As a result of this, we consider one's historical interaction with rug pull smart contracts (tokens) and account for it during MACRO score calculation. The technical definition of a rug pull smart contract can be quite loose here. For instance, it could correspond to tokens with sudden drops in total liquidity (TVL, or total value locked) on Uniswap or likewise in price.

Intuitively, the more you have interacted with rug pull smart contracts, the more your MACRO score would be affected negatively. Again, the idea is that one's interaction with riskier smart contracts can be indicative of a higher risk profile. It is thus prudent to be cautious of which smart contracts you interact with while attempting to improve your MACRO score.