# Glossary

Terms used throughout the documentation may be unfamiliar to developers. Below we list some common terms that will help with your understanding.

Term | Description |

Adequacy Ratio | Represents the ratio between total collateral multiplied by the LTV, and the borrowed principal multiplied 1/Borrow_Factor**. When the Adequacy Ratio goes below 1, the loan is undercollateralized and can be liquidated. |

Exchange Rate | Each iToken is convertible into an ever increasing quantity of the underlying asset, as interest accrues in the market. The exchange rate represents the real-time exchanging ratio between iToken and the underlying asset. |

Loan To Value | The maximum borrowing power of a specific collateral specified per collateral and expressed in percentage points. |

Borrow Factor | The discount on LTV when borrowing asset, specified per borrowing asset and expressed in percentage points. |

Close Factor | The maximum percentage of outstanding borrow of the underwater borrows when a liquidation occurs. |

Liquidation Incentive | When a liquidation occurs, a liquidator may repay some or all of an outstanding borrow on behalf of a borrower and in return receive a discounted amount of collateral held by the borrower; this discount is defined as the liquidation incentive. |

Supply Capacity | The maximum supplying amount of collateral. If the capacity meets, no more supply is permitted. |

Borrow Capacity | The maximum borrowing amount of borrow asset. If the capacity meets, no more borrows are permitted. |

Distribution Speed | The total amount of reward token distributes in one block. |

Distribution Factor | The distribution factor defines the weighted factor of reward speed for each asset. |

Reserve Factor | The reserve factor defines the portion of borrower interest that is converted into protocol profits. |

**Adequacy Ratio is calculated as followed,

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