A previous article introduced how to participate in the Suilend project for the December TGE, with the main strategy being: Deposit USDT on Suilend — Borrow SUI on Suilend — Stake SUI to Scallop and lend USDC — Deposit borrowed USDC into Suilend.
👉Cost: 1500 USD
👉Expected returns: Potential interest of 16% annually + 37,577 Suilend points
👉Risk: Borrowing SUI on the Suilend platform and staking it on the Scallop platform to lend USDC, if the SUI price drops, the collateral value on Scallop will decrease, triggering the liquidation risk on Scallop. Meanwhile, since SUI is my loan on Suilend, a drop in the SUI price will also increase my liquidation risk on the Suilend platform. Thus, any significant volatility in the SUI price could lead to simultaneous closeness to liquidation on both sides.
1. Liquidation threshold price of SUI
Uncle calculated the liquidation price of SUI (as shown in the figure below)
Suilend liquidation price: Liquidation price = Amount of staked SUI / Amount of borrowed USDC ÷ Liquidation threshold = 2.17 U
Scallop liquidation price: Liquidation price = Amount of staked SUI / Amount of borrowed USDC ÷ Liquidation threshold = 1.36 U
2. In-depth quantitative analysis of the volatility risk of looping lending SUI
👉Present the conclusion first followed by reasoning
Probability of triggering the liquidation price increase: approximately 52.84%, the probability of SUI reaching $2.17 within 50 days exceeds half.
Probability of triggering the liquidation price drop: approximately 24.63%, the likelihood of SUI dropping to $1.36 within 50 days is relatively low.
Inference process:
1. Collected daily price data of SUI for the past 365 days and calculated daily returns (percentage change in closing prices). This is the foundational data for measuring SUI volatility.
Calculation of the annualized volatility over 2.50 days: first calculate the daily volatility (standard deviation of daily log returns), then convert the daily volatility to 50-day volatility (daily volatility × (365/50)^(1/2)), resulting in a 50-day volatility of 16.61%.
3. Calculate probability: Finally, apply a model simulating random price fluctuations of assets (GBM) to calculate the probability of reaching the liquidation price within 50 days, as shown in the formula below.
Note: The model assumes price changes have no specific direction (I really can't determine the price trend of SUI), mainly driven by volatility. Ultimately, the probability of triggering the liquidation price for SUI to rise is 52.84%, and the probability for liquidation price to drop is 4.63%.
