Depth-Adjusted Value

Depth-Adjusted Value is a valuation metric that accounts for the liquidity of an asset when determining its worth. It recognizes that the price of an asset on an exchange may not be achievable for a large volume of tokens.

By adjusting the price based on the available market depth, this metric provides a more realistic view of what an asset is worth in a liquidation scenario. This is particularly important for protocols that use various tokens as collateral, as it prevents them from overestimating the value of their reserves.

Using depth-adjusted value ensures that protocols remain conservative in their risk assessments and do not rely on prices that would disappear if they actually tried to sell their assets.