Liquidations
This documentation is a work in progress!
If the collateralization ratio of the SCDP falls below the liquidation threshold, anyone can repay debt owed, seizing an equal value plus incentive from the deposits. Any protocol owned collateral is seized before depositor assets.
The liquidation is incentivized by a configured liquidation incentive percentage for each debt asset. It increases the seized value when the asset is repaid in a liquidation. This compensates the liquidator for the effort while enabling control on the assets likely to be repaid.
The seized value is equally reduced from each depositors, eg. if a liquidation seizes 10% of all collateral, each depositor loses 10% of their principal deposit.
Similar to ICDP liquidations, the liquidator can arbitrarily decide which Kresko Asset to liquidate and which Collateral Asset to seize.
Cover
In addition to liquidations the SCDP has another mechanism of increasing collateralization. Cover is the act of providing any whitelisted assets to balance out the Debt Index value by reducing the overall debt value.
Cover Threshold
Threshold after which Cover is incentivized, up to Cover Threshold itself, it is above the LT but below the MCR.
Cover Incentive
Incentive percentage for providing Cover
Non-Incentivized / Incentivized
This action can be performed non-incentivized at any time. Cover Incentive is only active when the global position is under the configured Cover Threshold.
Reasoning
Purpose of this mechanism is to add an additional layer of depositor safety before actual liquidations are needed. Depending on the whitelisted assets it can also be used to almost completely hedge out the debt composition which is an area for further investigation.
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