📚Glossary

This glossary contains definitions for common terms used throughout the Bonzo Finance documentation. Familiarizing yourself with these terms will help you better understand the protocol and its various components.

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Term	Description
Annual Percentage Yield (APY)	APY represents the estimated annual return on your investment, taking into account the effect of compound interest. It differs from Annual Percentage Rate (APR), which does not consider compounding.
Collateral	An asset that a borrower pledges as security for a loan. In Bonzo Finance, users can supply various cryptocurrencies as collateral to borrow other assets.
Collateralization Ratio	The ratio between the value of the collateral and the value of the borrowed asset. It determines the maximum amount a user can borrow based on their collateral.
Health Factor	A metric that represents the safety of a borrower's position. It is calculated by dividing the total value of the collateral (multiplied by the liquidation threshold) by the total borrowed amount. A health factor below 1 indicates that the position is undercollateralized and subject to liquidation.
Liquidation	The process of selling a borrower's collateral to repay their outstanding debt when their position becomes undercollateralized (i.e., when the health factor drops below 1).
Liquidation Bonus	An incentive given to liquidators in the form of a bonus on top of the liquidated collateral. It encourages liquidators to participate in the liquidation process and maintain the stability of the protocol.
Liquidation Threshold	The percentage of the collateral's value at which a borrower's position becomes eligible for liquidation. It is specified for each collateral type and helps maintain a safe cushion for the protocol.
Loan-to-Value (LTV) Ratio	The maximum percentage of an asset's value that a user can borrow. It is determined by the asset's risk profile and helps maintain a healthy level of collateralization.
Bonzo Token (BONZO)	The native governance token of the Bonzo Finance protocol. BONZO token holders can participate in the decision-making process by voting on protocol upgrades and parameter changes.
bTokens	Tokens that represent a user's share of the supplied assets in a lending pool. They are minted when a user supplies an asset and burned when the user withdraws their funds. bTokens accrue interest over time based on the lending pool's performance.
Flash Loans	Uncollateralized loans that allow users to borrow funds without providing upfront collateral, as long as the borrowed amount plus fees are returned within the same transaction. Flash loans enable various use cases such as arbitrage, collateral swapping, and debt refinancing.
Reserves	The smart contracts that hold the supplied assets and manage the lending and borrowing activities within the Bonzo Finance protocol. Each supported asset has its own reserve.
Interest Rate Model	The algorithm that determines the interest rates for borrowing and lending based on the supply and demand dynamics of each asset. Bonzo Finance employs a variable interest rate model that adjusts rates in real-time to maintain a balanced market.
Stable Borrow Rate	A borrowing option that offers a more predictable interest rate for users who prefer stability over potentially lower rates. The stable rate is less volatile than the variable rate and is adjusted less frequently.