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  • Liquidations
  • ICDP & SCDP
  • Maximum Liquidation Ratio
  • Maximum Liquidatable Value
  1. fundamentals

Liquidations

Protocol solvency protection

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Last updated 1 year ago

This documentation is a work in progress!

Liquidations

Anyone can liquidate a position under the by repaying debt of a position, increasing its . The repayment value, plus a liquidation incentive, is seized from the collateral deposits and sent to the liquidator. The liquidator decides which asset to repay and the collateral asset to seize in return.

It is the final backstop for protocol solvency, ensuring all are . A CDP with collateral ratio below the liquidation threshold is considered underwater and subject to liquidation. The protocol incentivizes anyone to perform these liquidations, as it does not do so itself.

Liquidation incentives are added into the seized value during a liquidation, this value is taken from any of the deposited collateral assets in the position.

Anyone can perform liquidations in the protocol.

ICDP & SCDP

Both CDP models have their own liquidation process, the difference being that are targeting the assets of an account while the targets the pooled assets.

Maximum Liquidation Ratio

The maximum collateralization ratio (MLR) defineds the maximum collateralization ratio the position ends up in after a liquidation. This is equal or higher than the LT. It limits the seizable value to the minimum required to prevent unnecessary large liquidations.

Maximum Liquidatable Value

The protocol limits liquidations by calculating a maximum liquidatable value (MLV) for a CDP. The value is derived from the , resulting in the liquidated CDP's being equal to the MLR after the liquidation.

CDPs
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ICDP liquidations
SCDP liquidation
Liquidation Threshold
MLR
Collateralization Ratio
overcollateralized
collateralization ratio