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Similar to managing a leverage loop or loan position in other lending protocols, managing a CPA position in 246 Club primarily revolves around safeguarding it from liquidation. Two essential concepts guide this process:
  • Loan-to-Value (LTV) Ratio: This represents the percentage of your loan relative to your collateral. For example, borrowing 80 USDC against 100 aUSDC results in an 80% LTV.
  • Liquidation Threshold (LT): This is the threshold your LTV must remain below to prevent liquidation, such as 90%.
Your objective is to ensure your LTV stays below the LT at all times. Should your LTV approach the LT, your position becomes at risk of liquidation. Certain conditions may cause your LTV to rise closer to the LT, thereby increasing liquidation risk:
  • A decline in the value of your collateral.
  • An increase in debt value due to interest accumulation.
These risks are examined in greater detail below. To understand the consequences of liquidation and learn how 246 Club’s liquidation process works to minimize loss, review our liquidation section for a comprehensive overview.

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Morpho / Euler Earn Vault Bad Debt

Risks specific to other collateralized positions will be added once additional protocols integrate on the yield side.
  • In vaults based on Morpho v1.0, bad debt can arise. This lies beyond 246 Club’s direct control, but it may affect borrowers.
  • These v1.0 positions lack secondary liquidity and external price checks. Value depends on each vault’s exchange ratio (reflecting an individual’s share) and the underlying asset. If bad debt occurs, it is socialized within the vault, immediately realized, and reduces the exchange ratio. A lower ratio drops the share price, which could trigger liquidation if the value dips below your liquidation threshold.
  • While this risk stems from vault v1.0 mechanics rather than 246 Club, leveraging via 246 Club can amplify potential losses in such circumstances. This is inherent in leveraged strategies, and we strive to equip you with clear information and tools to help manage exposure.

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Yield Bearing Stablecoin Depegging

If the yield source is not a direct deposit into a yield pool but instead a tokenized yield receipt, its value may deviate from the baseline of its underlying denomination (e.g., ETH for LSTs/LRTs, or USD for most yield-bearing assets). Such deviations reduce the value of the collateralized yield position, which can increase the LTV and bring it closer to the liquidation threshold.

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Negative Net APY

When your borrow rate remains higher than the Morpho Vault yield for an extended period, the debt may grow faster than the collateral value. Over time, this can bring you closer to liquidation.

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When the Underlying Collateral Asset and Borrowed Asset Are Identical

(e.g., Morpho USDC Vault as collateral and USDC as the borrowed asset)
  • With the same asset (USDC) on both sides, price volatility won’t trigger liquidation.
  • This protection remains valid even if USDC depegs from its usual value.
  • However, the vault’s bad debt risk still applies.
  • Also, if the borrow rate outpaces the vault’s yield for too long, the increasing debt can push the position nearer to liquidation.

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When the Underlying Collateral Asset and Borrowed Asset Are Correlated

(e.g., Morpho USDC Vault as collateral and GHO as the borrowed asset)
  • Liquidation is possible if the collateral (USDC) breaks its peg or if the borrowed asset (GHO) overshoots its peg.
  • Bad debt in the vault remains a factor.
  • Similarly, if the borrow rate exceeds the collateral’s yield for an extended stretch, you risk liquidation as debt grows faster than collateral value.

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When the Underlying Collateral Asset and Borrowed Asset Are Unrelated

(e.g., Morpho ETH Vault as collateral and GHO as the borrowed asset)
  • If ETH’s price drops below a certain level or GHO’s value climbs disproportionately, liquidation risk arises.
  • Bad debt within the vault still applies.
  • As with other scenarios, prolonged borrowing costs that surpass the collateral’s yield can gradually push your position closer to liquidation.
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